Should Auto Dealers Worry About South Dakota v. Wayfair? - Greater Cincinnati Automobile Dealers Association

Should Auto Dealers Worry About South Dakota v. Wayfair?

By Stephen EstelleClark, Schaefer, Hackett

Does South Dakota v. Wayfair and newly-enacted state economic nexus laws (including Ohio’s) require auto dealers to collect other states’ sales tax if sales to residents of other states exceed the economic thresholds?

With respect to motor vehicle sales, auto dealers have little to worry about.  Each state requires payment of sales tax or a fee before a vehicle owner can obtain tags and title to the vehicle.  If a consumer wants to drive the vehicle lawfully, the individual must pay the tax.  For states, this requirement is adequate assurance the state will receive its money. 

The Wayfair decision addressed an entirely different situation—customers did not have to pay tax before they could enjoy the goods they purchased, and states were losing this revenue.  Wayfair changed this dynamic by allowing states to require out-of-state vendors to collect tax.

While technically, an auto dealer may have sales tax nexus with the state because sales to residents of that state exceed economic thresholds, if the vehicle was titled the dealer will be able to show that the tax was paid.  Thus, there’s little reason why a state would audit an auto dealer on that issue.

In addition, some states have agreements with others to require in-state auto dealers to collect sales tax from purchasers residing in the other states.  For example, Ohio auto dealers are required to collect tax on car sales made to residents of AZ, CA, FL, IN, MA, MI, and SC.

If an auto dealer sells items on-line (parts, for example), Wayfair and economic nexus laws might apply.  If online sales into a state exceed the state’s economic threshold, the auto dealer would have an obligation to register with the state and collect tax.  Thresholds differ by state, but most states (including Ohio, Kentucky, and Indiana) have chosen to use $100,000 or 200 transactions.

One issue that arises is when the threshold is met but some of the sales are exempt.  What then? 

Technically, the seller still has an obligation to register.  From a risk/benefit perspective, however, the seller might wish to weigh the cost of registering and filing returns against the risk of being assessed uncollected tax, interest, and penalties on audit.   

Dealers selling on-line who decide to register should charge tax unless the customer provides an exemption certificate.  When tax is charged, the customer’s receipt or invoice should clearly show the tax amount and the price used as the tax base.  The dealer’s internal records should as well and should tie to the sales tax return.

While the Wayfair case has had a significant impact on online retailers, motor vehicle sales will be unaffected.  Only if an auto dealer also functions as an online retailer should they have any concern.

Please contact Stephen at (614) 318-1465 for more information