REVISED MEMORANDUM 07/22/04
DATE July 22, 2004
TO: All County Treasurers and T&R Staff
FROM: Mathew Moser, Manager, Titles and Registrations Bureau
SUBJECT: Questions Regarding New Sales Tax Legislation
Section 7 of House Substitute for Senate Bill 147, amends K.S.A. 79-3603(o) to provide that the base for computing the sales tax on isolated and occasional sales of motor vehicles shall be the higher of the stated selling price or value pursuant to subsection (a), (b)(1) and (b)(2) of K.S.A. 79-5105, unless the motor vehicle is wrecked or damaged, in which case the stated selling price would be used. Since the implementation of this new sales tax legislation, numerous questions have been asked regarding common situations you may encounter with customers and the application of the new law. In conjunction with Policy and Research, we have compiled some FAQs for you to use as a reference guide. Please contact the Titles and Registrations Bureau as additional questions arise so we may properly research them and provide you with timely answers.
· Does the new law apply to trailers?
Answer – No, the stated sale price should be accepted for all trailers. Although the bill references trailers, they are not valued through VIPS, and thus you default to the stated sale price.
· Does the new law apply to heavy trucks (over 12,000 pounds), antique autos, motorized bikes or RVs?
Answer – No. The sales tax treatment of these vehicles has not changed.
· Does the new law apply to motorcycles?
Answer – Yes. The “Alternative Vehicle Cost Chart” available on VIPS should be used to determine the property tax value of motorcycles.
· What about vehicles with a purchase date prior to July 1, 2004?
Answer – The new sales tax law does not apply to purchases made before the new law went into effect on July 1, 2004. Purchases before July 1, 2004 should be treated as they were prior to the new law.
· Does the new sales tax law apply to individual sales outside the state of Kansas when the purchaser is a Kansas’ resident and the vehicle will be registered in Kansas?
Answer – Yes, it is still considered an isolated or occasional sale. However, if the seller is an out of state dealer it is considered a retail sale, and the stated selling price on the dealer’s invoice should be accepted. In both cases, the compensating use tax law also applies.
· How do trade-in allowances for isolated or occasional sales apply to the new sales tax law?
Answer – In an isolated or occasional sale, the property tax value of a motor vehicle traded in by the purchaser to the seller may be deducted from the selling price.
- Assuming the two vehicles are of equal property tax value, then no sales tax would be due on the transaction.
- If the two vehicles are not of equal property tax value, sales tax would be due on the difference between the higher and lower valued vehicles.
- If money is paid in addition to the vehicle being traded, sales tax is due on either the additional amount paid, or the difference between the property tax values of the two vehicles being exchanged, whichever is greater.
- If other consideration is paid in addition to the vehicle being traded, sales tax is due on either the value of the other consideration, or the difference between the property tax values of the two vehicles being exchanged, whichever is greater.
- If other goods, services or consideration is paid in exchange for a vehicle, sales tax is due on the value of the other goods, services or consideration, or the property tax value of the acquired vehicle, whichever is greater.
· Does the new tax law change any of the rules regarding gifts?
Answer – No. A gift affidavit must be provided (TR-12) signed by both donor and purchaser, certifying the vehicle is truly a gift (not just sold for a very low sales price). Gifts (no consideration is exchanged) are not considered sales.
· Does the new tax law affect the sales tax exempt status of sales (or gifts) between lineal descendants/ascendants?
Answer – No. Under the prior law, vehicle transfers between lineal descendants/ascendants were tax exempt whether they were sales or gifts, and the new law does not change that.
· Does the new tax law apply to vehicles sold through the legal processes of possessory or mechanic liens, abandoned vehicles and landlord affidavits?
Answer – No, these types of transactions are not considered “sales” and are not subject to the new law, the stated sales price should be accepted.
· What about auctions conducted by auctioneers for estates, bankruptcy, liquidation, or police and municipal auctions?
Answer – Yes, these are all considered isolated and occasional sales and subject to the new tax law. Sales tax would be charged on the property tax value or stated selling price, whichever is higher.
· What about lease buy-outs?
Answer - Lease buy-outs are not considered isolated or occasional sales, whether they are from a licensed dealer, or strictly a leasing company. The stated sales price on the invoice or lease agreement would be accepted.
· Is there any recourse for a customer wishing to challenge the validity of the vehicle property tax value on which the sales tax is based?
Answer – The purchaser should pay the sales tax to the County Treasurer so the vehicle can be titled and registered. The purchaser may then file a sales tax refund claim form (ST-21) through the Department of Revenue. The form is available on the KDOR web site at www.ksrevenue.org and click on “Forms/Publications.” Under “Your Business” click on “taxation,” and under “Forms and Instructions,” then click “sales.” The ST-21 is the sixth form down the list. However, the issue to be decided is limited to whether or not the County Treasurer correctly determined the property tax value, if the stated selling price is below that value.
· Are mileage and vehicle options given consideration when property tax class codes and values are assigned?
Answer – Mileage is not considered in the determination of the class codes or values. However, vehicle options and accessories are factored into the class code equation. All class code values are mid-point values and do not reflect either the high or low end of the value spectrum within each class code.
· It has been established that in order to meet the standard of “wrecked” or “damaged” under the new law, a vehicle must be declared “salvage” before a lower stated selling price can be accepted for sales tax purposes. Is it permissible for individuals to submit cost estimates or damage appraisals from insurance companies, body shops or dealers to lower the value, even if the amount of damage is not enough to qualify the vehicle as salvage?
Answer – Under the Department’s interpretation, a vehicle will be determined as “wrecked” or “damaged” for purposes of using the lower stated selling price for sales tax purposes only if a “salvage” or “rebuilt salvage” title has been issued or applied for. Cost estimates and appraisals will not be accepted.
Salvage vehicles are defined as:
1. A late model vehicle which is of a type required to be registered in this state and which has been wrecked or damaged to the extent that the total cost of repair at retail is 75% or more of the fair market value of the motor vehicle immediately preceding the time it was wrecked or damaged, and such condition was not merely exterior cosmetic damage to such vehicle as a result of windstorm or hail. K.S.A 8-197(a)(2)(B).
2. Any motor vehicle, other than a late model vehicle, which is of a type required to be registered in this state, but which cannot be registered because it has been wrecked or damaged to the extent that: The equipment required by state statute on any such vehicle used on the highways of this state is not present or is not in good condition, or proper adjustment, as prescribed by state statute or any rules and regulations adopted pursuant thereto, or such vehicle is in an inoperable condition or a condition that would render the operation thereof on the highways of this state a hazard to the public safety; and in either event, such vehicle would require substantial repairs to rebuild or restore such vehicle to a condition which will permit the registration thereof. K.S.A. 8-197(a)(2)(A)
3. A motor vehicle, which is of a type required to be registered in this state that the insurer determines is a total loss and for which the insurer takes title. K.S.A 8-197(a)(2)(C)
A ‘‘late model vehicle’’ means any motor vehicle which has a manufacturer’s model year designation of or later than the year in which the vehicle was wrecked or damaged or any of the six preceding years. K.S.A 8-197(a)(6).
· What about rebuilt salvage?
Answer – Rebuilt salvage is considered to be in the same category as salvage, since the value of the vehicle is considerably lowered by the rebuilt brand. The stated sales price should be accepted for rebuilt salvage vehicles.
If you need further clarification on any of these questions, contact Matt, Peggy or Ray at (785) 296-3621. 04-055a