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NJ CAR Receives Clarification on New

Jul 30, 2004

The new “motor vehicle tire fee” (tax) will be in effect by the time you read this (August 1).This fee, in the flat amount of $1.50 per tire, applies to all retail sales of “new” motor vehicle tires.It not only applies to sales of replacement tires, but also to the tires that are supplied as original equipment on new motor vehicles.In the case of most new vehicles, which come equipped with a spare, the total fee would be $7.50. Now is the time to check to make sure that your dealership’s Retail Order Form (ROF) includes a separate line item for “Motor Vehicle Tire Fee.”Also, you’ll want to check to make sure that your Lease Agreements and Repair Orders have the appropriate notations to allow the dealership to collect the “tire tax.” The Division of Taxation has responded to inquiries from NJ CAR as to how and when the motor vehicle tire fee will be applied and collected.The Division has provided clarification on the following details: ·”Donuts” and inflatable spares, as well as conventional tires supplied as spare, will be subject to the fee. ·New tires which are put on used vehicles as part of “reconditioning” or preparation for resale are subject to the fee upon sale of the vehicle to a retail customer.Thus, if a dealership takes a trade and replaces two tires, a total fee of $3 would be payable on sale of the vehicle to a retail customer.However, there would be no fee if the vehicle is wholesaled, because the tire fee only applies to transactions which are subject to New Jersey sales tax. ·The motor vehicle tire fee is not subject to the sales tax, and when it is itemized it should not be added to the taxable total on a retail order form, retail installment contract, or lease agreement. ·In a sale transaction, the fee is payable by the purchaser. ·There would be no fee for warranty replacement tires or for tires provided under a “free tires for as long as you own your car” promotion.Because the fee only applies to transactions where the sales tax applies, and no sales tax applies where the tire is provided at no charge. ·Sale of Vehicle to a Leasing Company.The sale of a vehicle directly to a leasing company is subject to the tire tax, as the Division of Taxation treats such sales as “retail deliveries.” ·Lease Transactions When Dealership is the Originator of the Lease.In such cases, either the dealership or the lease company is liable to pay the fee, depending on whether the dealership originates the lease or simply processes the sale to the lease company.If a dealer or leasing company wants to charge the lessee (the “purchaser”) for the fee, then they should ensure that the lease agreement contains a provision that lessees will be responsible for this fee.A dealer or lessor who collects this fee from the lessee, when there is no contractual provision requiring the lessee to pay it, may be in violation of the Consumer Fraud Act. The most important rule to remember is that the fee only applies when the sales tax also applies—with one exception: see above bullet point regarding Sale of a Vehicle to a Leasing Company.Except for the sale of a vehicle to a leasing company, no tire fee should be charged in any transaction where no sales tax is collected, such as a wholesale sale, a sale to an exempt entity such as a governmental entity or a charitable organization, or a sale to an out-of-state resident. The Division of Taxation has advised that the fee will be reported and remitted to the State on a quarterly basis, with the first report due on October 20, 2004.It is likely that the procedures for reporting and remitting will be similar to those for the sales tax.The Division has not yet announced whether this fee can be reported using the online reporting system many dealers use for the sales tax.