Tax Central Alert: Wisconsin Department of Revenue Issues Sales Tax Reminders for Dealerships

January 2, 2015|Jason Kiehnau

Motor Vehicle Protection Plans

The purchase or lease of a motor vehicle may be offered with optional protection plans for an additional fee. When these plans protect the customer from perils outside of and unrelated to defects in the property, they are treated as insurance* for Wisconsin sales and use tax purposes. Insurance is not taxable when the amount charged for insurance is separately listed on the invoice or contract that the customer receives.

Examples of protection plans that are treated as insurance for sales tax purposes are:

  • Ding and minor scratch protection – Plan covers minor dings or scratches that can be repaired without repainting the vehicle.
  • Tire and wheel protection – Plan covers repair of replacement for tires or wheels (but not the hub assembly) for damage received from road hazards.
  • Windshield protection – Plan covers repair or replacement of windshields that are cracked or chipped from perils, such as tree branches and road hazards.
  • Key replacement – Plan replaces keys or key fobs if lost or stolen.
  • Excess Wear and Tear (lease only) – Plan protects the lessee from excessive wear or going over allowable mileage.
  • Gap – Plan covers difference between what the automobile insurance plan will pay and the amount that is owed on the vehicle, in the event that the vehicle is "totaled" in an accident. An auto repair shop's sale of the replacement items and/or repair work to the insurance provider is subject to tax. For example, when a customer gets a door ding on his or her car and the insurance provider hires a repair company to fix the ding, the repair company's sale of the repair service to the insurance provider is subject to tax. The sale of the ding protection plan from the insurance provider to the customer is not taxable. Exception: If the insurance provider is also the seller/lessor of the vehicle, the insurance provider may provide the repair company with an exemption certificate claiming resale, assuming that the repair work is being performed on a vehicle that the lessor is using solely to lease to others.

* Insurance is defined in sec. Tax 11.27(1)(b), Wis. Adm. Code (May 2010 Register) to mean a contract or agreement which promises indemnity against loss or damage resulting from perils outside of and unrelated to defects in property.

CAUTION: These plans are treated as insurance for Wisconsin sales and use tax purposes. They may or may not be treated as insurance for other purposes.

Motor Vehicle Dealers' Measure of Use Tax Increased to $152 effective 1/1/2015

Wisconsin licensed motor vehicle dealers are permitted to report use tax on a certain dollar amount per plate per month for the use of motor vehicles assigned to certain employees and dealership owners. Effective 1/1/2015 – this measure (the amount multiplied by the tax rate in your jurisdiction) is increasing from $149 to $152 per plate.

To access the December 2014 Sales and Use Tax Report, visit the WDOR website.

For more information, contact Jason Kiehnau, CPA, leader of Schenck’s Dealership Team, or call any member of the State & Local Tax team at 800-236-2246.