Revenue Administrative Bulletin 1990-15

Approved: April 12, 1990

SALES TAX - SALES OF AUTOMOBILES BY LEASING COMPANIES AND OTHER SELLERS NOT LICENSED BY SECRETARY OF STATE

(Replaces Revenue Administrative Bulletin 1989-62)

RAB-90-15. In Revenue Administrative Bulletin 1989-62, the Michigan Department of Treasury established the following guidelines for the taxability of the disposition of vehicles by a person other than a vehicle dealer licensed with the Secretary of State. This Bulletin clarifies the scope of Revenue Administrative Bulletin 1989-62 and adds examples.

Background

Leasing companies are engaged in two separate and distinct businesses: (1) the leasing of automobiles which requires use tax registration; and (2) the selling of used automobiles. Selling automobiles is in the ordinary course of the lessors' and others' businesses. These automobile lessors (and other persons meeting the requirements set out below) must become licensed under the Michigan Sales Tax Act. [MCL 205.53(l)] The pertinent part of this section states:

"If a person engages or continues in a business for which a privilege tax is imposed by this act, the person shall under rules the department prescribes, apply for and obtain from the department, upon the payment of a registration fee of $1.00, a license to engage in and to conduct that business for the current tax year . . . . person shall not engage or continue in a business taxable under this act without securing a license."

See also Department of Treasury Sales and Use Tax Rules, 1979 AC, R 205.1.

Licensing Requirement

It is the Department's position that a leasing company or other seller is in the business of making retail sales when selling or offering for sale a used vehicle after selling or offering for sale 5 or more used vehicles in the previous 12 months. This includes, but is not limited to, a bank or financial institution, a business disposing of automobiles used as company cars, auctioneers selling from a fixed location as described in 1979 AC, R 205.53, a business selling a leased vehicle to an employee of the business, a lessor selling a leased vehicle to the vehicle's lessee or a third party, and a business selling vehicles rented on a daily basis.

New Procedure

To allow automobile lessors or other sellers (not licensed as dealers by Secretary of State) to pay the appropriate tax on sales of vehicles, the sellers shall pay sales tax on the gross proceeds (selling price) of the vehicle. (See MCL 205.51(g) and Department of Treasury Sales and Use Tax Rules, 1979 AC, R 205.10.) The tax shall be remitted on the seller's sales, use and withholding tax return, due on the 15th day of the month following the sale.

Form C-3140, printed at the end of this Bulletin, is provided for use by companies to prepare an original document in the sale of a vehicle. This information will verify the vehicle sale to the purchaser and provide proof that sales tax was paid on the sale. The original document becomes the property of the purchaser and must be presented to the Secretary of State at the time the vehicle is registered by the purchaser. An additional copy may also be provided to the purchaser, if desired. The format may be reproduced on company letterhead.

A vehicle dealer licensed as such (with the Secretary of State) shall continue to remit sales tax to the Secretary of State branch office when submitting form RD-108 Application for Michigan Title/Statement of Vehicle Sales Even When Making Sales of Leased Vehicles.

Caution

The liability for sales tax falls upon the seller for the privilege of making sales in Michigan. (See MCL 205.51 et seq.) Before applying for a new vehicle title, purchasers should receive the original document from the seller to establish that sales tax was collected on the purchase price of the vehicle.

Vehicles Sold to Out-of-State Residents

Vehicles sold to nonresidents require a special permit (30-day intransit) to allow the purchaser to drive the vehicle outside the State for titling and registration. The purchaser may apply for a 30-day intransit permit at the Secretary of State office. A new Michigan vehicle title will not be issued to the purchaser.

Sales tax on vehicles sold to residents of another state must be computed differently than tax on sales to Michigan residents. If the purchaser will be titling and registering the vehicle in one of the following states, no tax is due:

Alaska	Indiana	Montana	Oklahoma
Arkansas	Maryland	Nevada	Oregon
Delaware	Mississippi	New Hampshire	West Virginia
District of Columbia

If the purchaser is taking the vehicle to any other state, then two tax computations are required. The first is to determine the amount of tax due in the purchaser's home state. The second is to compute the 4% Michigan tax. After making the two computations, the seller collects the lower of the two amounts. [MCL 205.52a]

If the purchaser is taking the vehicle to Canada or another country (including U.S. territories), the Michigan 4% sales tax on the gross proceeds must be collected at the time of sale.

For further information, consult the Department of Treasury's form C-3296 Instructions for Collecting Vehicle Sales Tax From Buyers Who Will Register and Title Their Vehicle in Another State.

Examples of Sales of Vehicles

1. Leasing companies who provide long-term leases to their customers sell the vehicles at the end of the lease period. The vehicle may be sold to the lessee or to a third party. The sale of vehicles by the leasing company is subject to 4% sales tax on the gross proceeds.
    
2. Many businesses provide short-term leases (per day or week, etc.) to their customers. These lessors may lease a vehicle for a day, or lease a truck to be used for hauling large items, or they may lease motorhomes for use on vacations. Inventory vehicles are sold regularly and on a continuing basis. Sales of these vehicles are subject to 4% sales tax on the gross proceeds.
    
3. Utility companies often have a fleet of vehicles for use by company employees. Sometimes a specific vehicle may be assigned to a company official. Sales tax is due on the gross proceeds when these vehicles are sold and removed from the fleet. This includes sales to company employees.
    
4. Partnerships (or professional corporations) lease vehicles to the partners (or owners) or other employees. When these vehicles are sold to partners, owners, employees, or others, 4% sales tax is due on the gross proceeds.
    
5. Auctioneers selling vehicles and/or other property from their fixed location are deemed to be retailers, regardless of the frequency of the vehicle sales, and regardless of whether they are licensed as vehicle dealers by the Secretary of State. Auctioneers who are not licensed by the Secretary of State must pay sales tax on sales of vehicles in accordance with the above procedure. Auctioneers who are licensed by the Secretary of State are required to pay sales tax at Secretary of State branch offices by using form RD-108.

NOTE: The following form, C-3140, is not a true copy of the form. It has been recreated to provide the full content and general format of the original. If you require an exact copy of form C-3140, please contact:

Michigan Department of Treasury
Legal & Hearings Division
Treasury Building
Lansing, Michigan 48922
(517)373-3672

Michigan Department of Treasury
C-3140 (3/90)

Name and Address of Seller
(You may list here or reproduce this form on your company letterhead.)

____________________________________

____________________________________

____________________________________

VERIFICATION of SALES TAX PAID on VEHICLE SALE
by a SELLER NOT LICENSED by SECRETARY of STATE

Date ________

Name and Address of Purchaser

_________________________________ Vehicle Price ___________

_________________________________ Sales Tax Paid __________

_________________________________ Total Selling Price ________

Description of Vehicle

Year ____________ Make _____________ Model ___________

Vehicle Identification Number _____________________________

Signature of Authorized Representative of Seller

____________________________

The original of this document must be
submitted to the Secretary of State
when the buyer applies for title.