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Indiana Changes Policy on Taxability of Documentation Fees

Posted 3:00 PM by

Indiana has recently issued an updated version of Sales Tax Information Bulletin #28S, changing its policy on the taxability of documentation fees, effective April 2, 2019.

Historically, the Indiana Department of Revenue (IDOR) has treated these fees as if they were separate from the sale of the vehicle. It treated them as fees for helping a customer title and register a vehicle with the Indiana Bureau of Motor Vehicles (BMV). This is a nontaxable service in Indiana, so the documentation fees were not subject to sales tax. However, effective April 2, 2019, the IDOR will assume documentation fees are subject to sales tax if they are not “convenience fees,” a specific term that is defined in statute.

The new Bulletin 28S clarifies that as of April 2, 2019, if the dealership’s documentation fee meets the definition of a “convenience fee” as per Indiana Code 9-14.1-3-3, it will not be subject to tax.

This statute limits the total amount that may be charged for a convenience fee to 150 percent of the fee imposed – or authorized to be imposed – on the same transaction processed at a BMV license branch. Additionally, before a dealership may impose a convenience fee, it must notify customers in writing or by electronic means of the following:

  1. The amount of the convenience fee;
  2. That the convenience fee is not imposed on a transaction processed at a BMV license branch;
  3. The address and hours of operation of the BMV license branch located nearest to the dealership; and
  4. The distance between the closest BMV license branch and the dealership location

The notification must be on a separate document, although it may be on the same document as the customer’s agreement to pay the convenience fee. The customer must agree to pay the convenience fee in writing or by electronic means.

As of April 2, 2019, dealerships will need to have evidence that its documentation fees meet the definition of convenience fees to exclude them from the taxable vehicle price. Dealerships may also want to consider segregating and renaming qualified convenience fees as such on its internal paperwork and customer invoices. Any fees that do not meet the definition of convenience fee and that are not properly documented will need to be included in the purchase price of the vehicle and subjected to sales tax beginning April 2, 2019.

For more information or additional clarification on documentation fees, please contact your KSM advisor.

About the Author
Donna Niesen is a partner in Katz, Sapper & Miller’s State and Local Tax Group. Donna helps keep clients up-to-date on the multitude of tax rules and requirements in all 50 states. She guides them in the right direction as they address the complex issues that emerge on both the state and local levels. Connect with her on LinkedIn.

 

About the Author
Brett Breedlove is a director in Katz, Sapper & Miller’s Buy Here - Pay Here Services Group. Brett’s primary responsibilities include auditing and reviewing financial statements and advising clients in accounting, reporting, compliance, and internal control matters. Connect with him on LinkedIn.

 

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