WIXLIB

County ClerkSales and Use Tax Guidefor Automobiles & BoatsOctober 2020

COUNTY CLERK SALES AND USE TAX FOR AUTOMOBILES & BOATSDear County Clerks,This sales and use tax guide is intended as an informal reference for clerks who wish to gain a betterunderstanding of Tennessee sales and use tax requirements regarding motor vehicles and boats. Itis not an all-inclusive document or a substitute for Tennessee sales or use tax statutes or rules andregulations. The information in this guide is current as of the date of publication. Please be awarethat tax laws, as well as interpretation and application, may change due to legislative action, reviews,and court decisions.Periodically, the Department of Revenue (the “Department”) may mail or email informationregarding updates on tax laws and policies to the county clerks. Be sure to read any letter or noticeyou receive carefully; this information may save you time and lessen your administrative burden.The Department offers a toll-free tax information line for county clerks and all Tennessee residents.The number is (800) 342-1003. If calling from Nashville or outside Tennessee, you may call (615) 2530600. The Department also offers a telecommunications device for the deaf (TDD line) at (615) 7417398.The answers to many questions regarding sales and use tax are available on the Department ofRevenue’s website at www.TN.gov/revenue.If you have questions, please do not hesitate to contact any of the offices listed below.Sincerely,Taxpayer Services DivisionTennessee Department of RevenueTaxpayer Services DivisionAndrew Jackson Building500 Deaderick StreetNashville, TN 37242-1099Toll-Free: (800) 342-1003Out-of-State: (615) 253-0600TDD: (615) 741-7398Regional OfficesMemphis3150 Appling RoadBartlett, TN 38133(901) 213-1400Chattanooga1301 Riverfront ParkwaySuite 203Chattanooga, TN 37402(423) 634-6266Johnson City204 High Point DriveJohnson City, TN 37601(423) 854-5321Knoxville7175 Strawberry Plains Pike Suite 209Knoxville, TN 37914(865) 594-61002JacksonLowell Thomas State Office Building225 Dr. Martin L. King Jr. Drive Suite 340Jackson, TN 38301(731) 423-5747

COUNTY CLERK SALES AND USE TAX FOR AUTOMOBILES & BOATSTable of ContentsTaxation of Automobiles and BoatsAutomobile SalesBoat Sales555Sales PriceRebates and DiscountsAccommodation Fee CreditTrade-InsWarranty or Services ContractsRepairs and Installations667788Sales Tax ExemptionsSales to Nonresident PurchasersSales to Members of the Armed ForcesOther Exempt PurchasesGiftsRelocation – Motor VehiclesRelocation – BoatsLoaner Vehicles9991011121213Single Article ApplicationState Tax on Purchases of Single ArticlesComputing Sales Tax Due on Single Articles141414Sales Tax on Automobile TransfersIndividualsNon-ProfitsGovernmental EntitiesCorporations and 83-Day Affidavit19Certificate of Interstate Delivery20Application for Interstate Commerce Motor Vehicle Exemption21Affidavit of Non-Dealer Transfer223

COUNTY CLERK SALES AND USE TAX FOR AUTOMOBILES & BOATSTaxation of Automobile and Boat SalesAutomobile SalesBoat SalesSimilarly, sales of boats are sales of tangiblepersonal property subject to sales or use tax.Under Tennessee sales and use tax law, salesof motor vehicles, trailers, and off-highwayvehicles are sales of tangible personalproperty subject to sales or use tax.Occasional and isolated sales of vesselsbetween persons who are not boat dealersare included in the definition of “business”and are subject to the sales tax.Occasional and isolated sales of motorvehicles between persons who are not motorvehicle dealers are included in the definitionof “business,” and these sales are also subjectto the sales and use tax. There are someexceptions, but generally, each time there is atransfer of title to a motor vehicle, thetransaction is subject to sales or use tax.With the same exceptions as motor vehicletransfers, generally, each time there is achange of boat ownership/transfer of title, thetransaction is subject to sales or use tax.Sales between persons who are married,lineal relatives or spouses of lineal relatives,or siblings are not included in the definition of“business” and are not subject to sales or usetax.Lineal relative transfers include transfersbetween spouses, siblings, parents andchildren, grandparents and grandchildren,and great grandparents and greatgrandchildren.The spousal qualifier only applies to linealrelatives (great grandparents, grandparents,parents, and children). It does not apply tosiblings. Therefore, a stepfather could sell tothe spouse of a stepchild and vice versa, but abrother-in-law cannot sell to his sister-in-lawunder this exemption.For more information on taxability of varioustypes of motor vehicle transfers, see Sales Taxon Automobile Transfers beginning on page16 of this tax guide. [Tenn. Code Ann. § 67-6102(8)(C).]4

COUNTY CLERK SALES AND USE TAX FOR AUTOMOBILES & BOATSSales Pricevehicle or boat is in excess of the localmaximum single article amount.The sales and use tax law defines “sales price”as, and applies the tax to, the total amount ofconsideration received by the seller for theitem being sold.Motor vehicle and boat dealers will often passthe dealer’s business tax liability to thepurchaser by including a separate charge onthe invoice to the customer. Tenn. Code Ann.§ 67-1-112 allows any dealer the option toseparately itemize and collect business tax.When an itemized charge for business tax ismade on the invoice or other sales document,the amount of business tax must be includedin the tax base for sales tax and business taxpurposes.Automobile and boat dealers often separatelyitemize charges to the customer. Clerks mustdistinguish between the taxable sales price ofa motor vehicle or boat and nontaxable feesstated separately and passed through to thecustomer.The sales or use tax should be paid on the fullamount charged for an automobile, trailer, orother motor vehicle or boat without anydeductions for labor or other charges forpreparing a motor vehicle or boat for sale,freight, federal excise tax, etc. The tax shouldalso be paid on the full amount charged forany accessories or parts sold with andinstalled on a motor vehicle or boat. Anyinstallation labor in connection with a sale ofaccessories, or repair labor involved ininstalling, replacing, or repairing parts on amotor vehicle or boat, is subject to the salesor use tax. [Tennessee sales and use tax rule1320-05-01-.03]Used vehicle and boat dealers may also offerfinancing to customers who otherwise cannotqualify for commercial financing of a motorvehicle or boat. Financing charges or interestfrom credit extended on sales of tangiblepersonal property that are separatelyitemized on the customer’s invoice or othersales document are not part of the sales priceof the property and are not subject to tax.[Tennessee sales and use tax rule 1320-05-01.25]Insurance policies such as accident, collision,and guaranteed auto protection (GAP)covering motor vehicles or boats are notincluded in the tax base when such chargesare separately stated on the invoice.Charges made by a dealer to customers fortitle fees are considered “pass through”charges excludable from the sales price of themotor vehicle or boat. Title fees should beexcluded from the sales or use tax base whenthey are listed separately on the customer’sinvoice or other bill of sale and are actuallyremitted for titling and registration of thecustomer’s vehicle or boat.GAP insurance provides that, if a total lossaccident or theft occurs, the dealer or otherissuer of financing will eliminate any debt thepurchaser owes at the time of the loss that isin excess of the value of the vehicleAdditionally, charges made for any otherservice necessary to complete the sale of thevehicle, such as documentary fees or prepfees, are part of the sales price of the vehicleor boat. These charges should not result inadditional local tax if the selling price of theRebates and DiscountsWhen a manufacturer’s rebate is offered onan item of tangible personal property, thesales tax is assessed on the full sales pricebefore the application of a rebate.5

COUNTY CLERK SALES AND USE TAX FOR AUTOMOBILES & BOATSSales Price (continued)Trade-InsWhen the consumer receives a pricereduction because the seller received themanufacturer’s rebate, the total amountreceived by the seller for the sale has notchanged. The seller simply receives a portionof the consideration from the customer and aportion through the rebate amount from themanufacturer.When an item of tangible personal property istaken in trade as a credit or part payment onthe sale of new or used articles, the sales anduse tax shall be computed and paid on thenet difference between the sales price of thenew or used article sold and any creditactually given for the used article accepted intrade. [Tenn. Code Ann. § 67-6-510(a)]If a single item with a total sales price of 20,000 has 5,000 in manufacturer’s rebatesapplied, making the total amount theconsumer pays only 15,000, the consumerstill owes sales and use tax on the full 20,000sales price before application of the rebates.The sales price of 20,000 has not changed,even though the consumer received a paymentbreak because a portion of the sales price isrebated to the dealer by the manufacturer.Before any credit may be allowed for tradeins, the traded-in item must be of a like kindand character as the item purchased, and itmust be indicated as “trade-in” by model andserial number, where applicable, on aninvoice given to the customer. [Tennesseesales and use tax rule 1320-05-01-.02]In addition, if the consumer pays full price atthe time of purchase and then applies for therebate after the purchase is completed, thedealer has also received the full sales price forthe item being sold.There are no other general limitations to thetrade-in process. Neither the statute nor therule requires that proof be given that tax waspaid previously, whether in Tennessee or inanother state, on the traded-in item in orderto receive any trade-in credit. Further, thestatute applies to all trade-in situations, notjust to trade-ins of motor vehicles or boats.If the dealership discounts the price of thevehicle or boat and does not receivecompensation for the discounted amountfrom any third party, sales tax is due on theactual amount received by the seller after thediscount is applied.Any recovery which may be received orallowed as a result of insurance may not beconsidered as a trade-in, and no credit maybe given or allowed for such recoveries.[Tennessee sales and use tax rule 1320-05-01.02(4)]Accommodation Fee CreditWhen a trade-in is involved in the purchase ofa motor vehicle which has been imported foruse in this state, the vehicle which was tradedin for the new vehicle must have beenpreviously registered in Tennessee in thename of the person importing the new vehicleinto the state before any credit may be givenfor the trade-in. [Tennessee sales and use taxrule 1320-5-1-.03(6)]There is a deduction from sales price for thereimbursement paid by a third party(automobile manufacturer) to a car dealer forselling or leasing a motor vehicle at a discountto the manufacturer’s or dealership’semployee. It is a third-party reimbursement ofan employee discount that would normally beincluded in the sales price except for theexemption found in Tenn. Code Ann. § 67-6394.6