Recent Sales and Use Tax Developments
Gasoline Tax Credit. Dealers are entitled to a sales tax credit for sales tax paid on gasoline when a new or used vehicle is sold with gasoline in the gas tank. The procedure to compute the credit is as follows:
- Determine the number of new and used vehicles sold from the operating statements.
- Determine the number of gallons of gasoline put into each tank. Tank size on new vehicles can be determined by model. For used cars, use the number of gallons actually put in the vehicles. Multiply the total number of gallons by 85 percent.
- Find the average price per gallon of gasoline each year, not including the 19-cents Michigan Motor Fuel Tax.
- Multiply the number of vehicles in step 1 by the number of gallons in step 2. Multiply that amount by the average price per gallon in step 3.
- Take the amount as a deduction on line 5I of the sales, use and withholding return worksheet. Identify the deduction as “Prepaid sales tax”.
Dealerships that have storage tanks should not use this procedure. A dealership with storage tanks (and therefore purchase from a wholesaler) must make a claim for exemption for resale and prepay the sales tax to the wholesaler. The current prepaid sales tax rate is 8.1 cents per gallon on the amount paid. The prepayment is then used as a credit against the sales, use or withholding tax due. To obtain credit, the dealer must file a Gasoline Retailer Supplemental Report (Form 2189) with the monthly or quarterly sales, use and withholding tax return.