Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.1874.100


330.1874.100 Automobiles Provided to Employees. A wholly owned subsidiary not engaged in either the manufacture or sale of automobiles, issued a resale certificate to its parent company that is engaged in the manufacture of automobiles. It purchased vehicles from the parent company without payment of tax and assigned them to high ranking employees for personal use in exchange for a monthly payment of 1.73% of the cost of the auto. The autos are returned by the employees after 10,000 miles of use. The employees are required to submit a product evaluation form. The subsidiary pays use tax on the amount paid by the employees and also pays for the repairs, maintenance, insurance, and license fees.

These transactions are not bona fide lease agreements and the autos should not be purchased under resale certificates as they were not purchased for resale in the regular course of business. The amount paid by the employees is about 1/3 of the market rental rate, the use of autos is available only to employees at a certain level in hierarchy, the amount to be paid is not negotiated but dictated by the taxpayer, and the employee does not bear the ordinary expenses associated with the lease of an auto. These agreements are essentially fringe benefits for employees high up in the organization, and tax is due on the purchase price. 8/12/92.