Sales Taxes...GOTCHA

drcollie · Mar 8, 2004

Here's something interesting that's happening...back in March 2002 when I bought my Kubota brand new I was price shopping like any good shopper does. Actually, I was pretty much squeezing a coupla dealers out of the LAST NICKEL and it cam down to a Maryland dealer who could deliver to bike to me for "xxxx" dollars and my local Virginia dealer who was $ 100 less. But then there was the sales tax on the VA purchase which was $ 742.50....vs. the Maryland dealer's tax-free status and delivery charge of $ 100.00.

So I told the VA guy I'd buy in Maryland, as when all was said and done I'd be about $ 500 less out-of-pocket. Not wanting to lose a sale, he said 'Do you have an out-of-state address I can show this tractor delivered to?"

I said "No, I don't".

Then he replied "I'll take care of the sales tax."

As I was looking for net-net, I said "Lets do it" and he brought the tractor over to the house (In VA) and we signed all the paperwork in the driveway. I noticed his "ship to" address was in "Olney, MD" but didn't pay it much mind as I had a shiny new BX22 in the driveway and that was capturing all my attention.

Now, almost two years later, here comes a letter in the mail from the dealer saying "We're under review by VA State Taxing Authority and you must sign and notarize that you took delivery of this unit to the Olney address or pay $ 742.50." And they enclosed a form to get signed and notarized if you indeed DID take delivery out-of-state.

So I look at this and think "This is so bogus".....they cooked their books and now I have to pay. I could sign the form, get my signature notarized and send it in. Chances are nothing more would happen...BUT....BUT......BUT.....to do that commits fraud and against the State of Virginia, and then I'd have a much larger issue on my hands than a tax bill.

Even if I did send that in, they can come back to me for the Use tax (equal to the sales tax) on out-of-state purchases unless the tractor is proven to be kept at a property in Maryland (which of course it's not as I have no idea who even lives at that address). Best not to mess with the tax collectors.

Who's at fault?

I've decided it's me.....why? Well, I more or less knew what they were proposing to do and didn't stop it. I let them show a fictional address on the invoice rather than insisting they lower the purchase price and charge me the correct sales tax.

So I'll pay the sales tax rather than compounding the issue to a higher level, but you can bet **** well I'll be speaking to the owner of the Kubota dealer about this and looking for some reduced pricing on any future implement buys as some compensation.

Lesson to be learned and a head's up for ya'll...

Don't screw around with your states sales taxes by allowing a merchant to give you a work-around. If you do, you may very well find yourself the subject of a 'reach-around' a few years down the road and paying the sales taxes after the fact.

This also applies to product coming IN to you from out of state. Almost all states require you to pay a USE tax, so if you buy a tractor in North Carolina and have it shipped, you may very well get a USE tax bill in the mail a few years later when your state conducts a shipping audit.

-Duane C. < a little poorer now, but much wiser.
Northern Virginia

DocHeb · Mar 8, 2004

I think I'd find a way to send the money directly to the state rather than to the dealer.

PineRidge · Mar 8, 2004

I think I'd find a way to send the money directly to the state rather than to the dealer.



I'll second Chris's motion.

5030 · Mar 8, 2004

I agree with Chris.

Here in Michigan, we (ARD Farm, L.P.) is/are tax exempt. Of course, if I bought a tractor the size of your BX, I have a feeling it would throw up a red flag in Lansing. We have an agricultural exemption on file with our suppliers. If I bought a lawnmower, however, I would not hesitate to pay sales tax on it. If I bought an expensive lawnmower like your BX, I'd most certainly depreciate it. Not try to beat the state out of their rightful duties.

Kevin37 · Mar 8, 2004

Duane

Wow ! You got my attention. I also live in Northern VA and am about to take the leap on a major tractor purchase. I'm in Berryville and would love to know who the dealer was in your situation. Send me a private e-mail if you don't want any public display of names on the forum. The whole thing hits home because one of the options I am considering is an out of state purchase from a dealer who will deliver to my driveway. He too claims that there will be no tax due to my not residing in his state. Interesting stuff. My wife is a CPA.....maybe it's time to put her to work doing some investigating before I take the plunge and do something I will regret later.

The first thought that came to my mind when I read your situation were the details on your reciept. Is it all itemized to show the purchase price and the tax with a total just being higher by the same amount the state is now looking for? Or are there discrepencies between the price and the tax due? I wouldn't mess with the state, but I would certainly go back to the dealer and have a little discussion.

At any rate, good food for thought ! This is just more proof of how valuable the service is that this forum and it's members provide!

Good luck
Kevin

MikePA · Mar 8, 2004

Duane, this situation, a dealer getting his books audited by the state/commonwealth, is not all that unusual, particularly for big ticket items like tractors. The taxing authority wants proof that the sale was, in fact, an out of state sale and no tax was due.

I was originally going to buy a Kubota and the dealer asked me the usual questions about how I was going to use it. One of the things I mentioned was that we had horses. The conversation finally got down to how much the tractor would cost. The guy added everything up and showed me the price.

I asked, "I will owe sales tax on top of that price, right?" (I knew the answer was supposed to be yes.)

Salesman replied, "You said you have horses, right? Sounds like a farm to me."

Since I wasn't buying that night anyway, I came right to TBN and asked if this was legit. (At least I think I asked here. /forums/images/graemlins/smile.gif ). The answer I received was, if the dealer gets audited, and they do not have proof I was a farmer, I could get a bill for the sales tax, and the dealer could be in big trouble.

It's a similar situation with selling out of state, particularly for dealers near a state border. If I were an auditor, that's where I would look for people trying to beat the system.

P.S.
I did not buy a Kubota and if I had, I would not have bought from this dealer. I figured if he was willing to cheat the state, he wouldn't blink an eye to cheat me.

OkeeDon · Mar 8, 2004

I think I would neither signed their form OR paid them the tax. You had their statement, "We'll take care of the tax." You didn't suggest or condone the cheating. If you refused to sign the statement, and refused to send them the money, they would either have to pay the tax themselves or face the penalties for not properly collecting it.

When my business was active, nearly every week I had someone suggest that I do this or that to work around the sales tax. The most frequent suggestion was that I take cash so the sale would not show up. I simply told these people that every transaction had to go through the register, or I wouldn't have enough money to pay my bills. The truth was, I knew that if any of those transactions were ever discovered, I would be on the hook for the tax payment, not my customer. In short, I think they have one heck of a nerve asking you to pay the money after they were the ones who connived to cheat the state.

BillyP · Mar 8, 2004

Looks to me like, if it was legitimate, the letter would have came from the state?

zuiko · Mar 8, 2004

Sounds to me like they are on the hook to the state and they are hoping to get out from under it by you either signing the paper or sending them cash to cover the bills. They are the retailer and they are the ones on the hook for the whole amount (and then some) if they can't document a tax-exempt sale.

I wouldn't respond to anything unless it came directly from the state.

txdon · Mar 8, 2004

he replied "I'll take care of the sales tax." 

They know where they delivered to. I'd let them "take care of the sales tax". When you made the deal you probably thought that that to be competitive the dealership reduced their profit margin to be competitive. Do you know for sure what their intent was when you saw another address on the invoice. How do you know that for sure, or were you just blindly speculating? Did you tell them a bogus address? Their problem not yours. That's your story and stick to it. I'm sure Kubota USA does not want dishonest salesmen and dealers distributing their product! You may need to speak with a regional manager. /forums/images/graemlins/mad.gif

Inspector507 · Mar 8, 2004

His next letter just MAY come from the State.

shvl73 · Mar 8, 2004

I'll be the third to agree to sending the $ directly to the state. Be aware there could be penalties, check with someone to find out. If you know someone who can legally advise you reasonably, ask. It would seem to me that you took delivery for a taxable item in state, for use in state, with full knowledge of the item being invoiced to a ficticious address for the sole purpose of avoiding state sales tax. I'd have a hard time convincing anyone that the dealer is the only one swinging in the wind on this one. Good luck.

MadDog · Mar 8, 2004

FWIW, I live in Massachusetts and recently bought my B7800 from a dealer in Vermont. He expressly disclosed at the outset that he would have to collect the Mass 5% sales tax even though the tractor was being delivered to me here in Mass. His honesty was one of the reasons I bought from him. Also, the fact that he is obligated to collect the sales tax for Mass suggests that some states, at least, have compacts with neighboring states to get mutual enforcement of their sales tax laws.

...somethin' to think about when buying out of state; I did because the price was far better, even though there was no saving on sales tax.

Incidentally, I basically agree w/Don that, while Duane has some potential exposure here, the dealer deserves to be in much deeper sh*t because he proposed and orchestrated the avoidance, should have known better, and should have "bitten the bullet" by either lowering his price or losing the sale. Poor ole Duane, after all, just succumbed to the temptation to close his eyes to what the dealer was doin' and go along with it. /forums/images/graemlins/wink.gif

JDgreen227 · Mar 8, 2004

Thanks for sharing your experience, too frequently a new tractor owner will post and say "because I am buying out of state, I don't have to pay sales tax..."

I will agree with the other replies, DO NOT remit any type of payment to the dealer. If your version of the facts is true and you were told by the dealer "I'll take care of the sales tax", I hope you know who made that statement so you can report your version of the transaction. Sad to say, any fraud commited by the dealership doesn't excuse you from your legal obligation to pay sales and/or use tax.

If I were in your place, I would remit the sales tax directly to your state's taxing authority with a cover letter of explanation.

Good luck, and I hope you avoid any penalties.

755inNY · Mar 8, 2004

Duane,

I agree with the other's. I would not sign anything the dealer sent you. Do the right thing and pay the tax. If nothing else it will be the cheapest way out; you don't want the State on your case for $742. I would not just turn over the money to the dealer. I'm no legal expert, but I would insist on a revised bill of sale listing the correct delivery location, the sales tax and marked paid. You need documented proof that you paid the sales tax to the dealer.

You could try making the dealer pay the tax but I think you will end up in a "he said/she said" situation. The dealer will say that the delivery information came from you and you accepted the invoice and delivery as written. Did you sign anything when the tractor was delivered acknowledging you received the goods? Most places have you sign something.

My great State of NY now has a line on the Income Tax form to list sales tax not paid on out of state purchases. They are going after internet sales. You can't just leave the line blank. If you want to claim zero, you have to enter zero and then sign the form. They do make it easy for us. If you did not keep track of receipts, you can enter an amount from a table based on annual income.

Good Luck!

Jeff

lablovers · Mar 8, 2004

I believe there is a legitimate difference between an Internet Purchase, which I believe in most states does not require sales tax. This sales transaction was not handled via the internet but was a deliberate intent to use a bogus delivery address to avoid sales tax. If I purchase something in another state, then I expect to pay that states sales tax.
Lablovers

Tractors4u · Mar 8, 2004

I kind of agree with OkeeDon on this one, but if it does come down to you having to pay tax wait until you get a letter from the state asking for it. Not to be dishonest but to insure that they know that the got the money. Being in the National Guard I heard of a Chaplain that was paid twice for an active duty school that he went to. Being the honest man that he was he mailed one of the checks back and thought all was well until the Army came asking for the money they over payed. Don't give them the money until they ask for it or you will only confuse the state.

KiotiJohn · Mar 8, 2004

Unless you receive a tax bill from the state, I would not send any money to anyone. The dealer is obligated to pay the taxes to the state as they are the ones who delivered the tractor to you and they knew where you lived. As you were told, "I'll take care of the tax" I'm sure you assumed he was reducing the price by that much to compete. Only upon examination of the delivery slip did you notice the address and just thought it was a mistake of no concern, right? Without a bill from the state, sending it in to them, even with a letter of explanation would not remove liability. I think it's better to just wait and see. The dealer is going to be made to pay that tax if you don't sign anything, or the state will send you a bill. Either way, no money to anyone now, and only to the state if you are billed. John

755inNY · Mar 8, 2004

I believe there is a legitimate difference between an Internet Purchase, which I believe in most states does not require sales tax. 

To the contrary, Lablovers, most states place the burden on the buyer for paying sales taxes not collected by the seller. In NY, if I buy something from out of state, and no sales tax was charged, it is my responsibility to remit the sales tax to the state. If sales tax was charged but at a lower rate than levied in NY, I am responsible to remit the difference.

You can see in my previous post that we must now disclose this on our State Income Tax return. This is just the beginning. The State will start collecting information from major internet retailers and match it up with tax returns. With the age of electronic data (seller's records, shipper's records, credit card records), it is not impossible for the State to gather information. I recently bought an airplane kit from a dealer in Florida. I took delivery in Florida and transported it home myself. I registered the unfinished plane with the FAA to reserve my preferred registration number (unlike cars the airplane registration fee is a one time thing). A few months later I received a letter from my state taxation office looking for their sales tax. Apparently they scan the FAA registration records or get a direct dump. I had paid the sales tax in Florida, which was the same rate as NY. I sent in a copy of my invoice and that was the last I heard of it.

I would caution Duane from sending payment directly to the state without first having an iron clad method of linking your payment to the tractor sales tax obligaiton. Sending in a payment blindly to the state beauracracy could get it lost for a long time. Tax guys usually don't wait for errors to be worked out. As far as they are concerned, if they don't have proof you paid, you owe it NOW.

Jeff

frank_f15 · Mar 8, 2004

i would not sign that paper, u are then notorizing a false statment. i also would not send them a check, i also would not send a check to the state tax dept . even with a cover letter, all that is going to do is raise all kinds of flags. now if the STATE sent u that notice it would be different. and if the state does come after you, expailn what happened , pay the tax and the penaltys, and go from there.