Opinion Letter

Letter Number:O-2009-014
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Vehicle repossession by a dealership that financed the sale.
Keywords:
Approval Date:11/12/2009



Body:
Office of Policy & Research


November 12, 2009

XXXXX
XXXXX
XXXXX Dear XXXXX:

Thank you for your recent e-mail. You ask if an accrual-basis dealership that finances the sale of a vehicle can claim a deduction for the sales tax that it paid to the department at the time of sale, if it later repossesses the vehicle because of a payment default. The answer is yes.

The type of repossession you are asking about is discussed in EDU-31a, Sales Tax Guidelines: How Kansas Motor Vehicle Dealers Should Charge Sales Tax on Vehicle Sale.

Please note that if the sale is financed by another party, such as a bank or credit company, the dealership may not take a sales tax deduction if the vehicle is later repossessed. Similarly, no deduction or refund claim may be made by the bank or credit company for any part of the sales tax that the dealership paid to the department. When a vehicle sale is financed by a third-party lender, the dealership is paid by the lender and suffers no loss if the buyer defaults on the loan. This same rule applies when a vehicle is repossessed after a dealership that originally financed the sales transaction later sells its loan paper to another lender.

The dealership's repossession of a vehicle is not a retail sale and is not taxed when the title is returned to the dealership. When a repossessed vehicle is resold by the dealership, the sale is required to be reported as part of the dealership's gross receipts without regard to any sales tax that was paid by the previous buyer who defaulted on the loan. When a retailer uses a repossessed vehicle other than for retention, demonstration, or display while holding the vehicle for resale in the regular course of its business, the dealership is required to accrue sales tax on the use of the vehicle.

Please call me at 785-296-3081 if you have any additional questions.

Date Composed: 11/16/2009 Date Modified: 11/16/2009