NC folks - Is Highway Use Tax a sales tax ?

[FEDUKE404]

Client, like many government retirees in NC, is in a position to benefit by using the sales tax tables for Schedule A deductions.

In 2013, a new personal automobile was purchased and the NC "Highway Use Tax" was > $1000.

North Carolina does *NOT* have a sales tax on the purchase of new vehicles, but instead has the HUT. Sales tax rates for NC in 2013 were 6.75% and the HUT rate is 3%.

For your entertainment: North Carolina levies a tax on the privilege of using the highways at the rate of 3% of the retail value of a motor vehicle. The tax cannot exceed $1,000 for Class A and Class B commercial motor vehicles (as defined by law). Tax is paid when a vehicle is purchased or titled in North Carolina. If the motor vehicle is purchased from an automobile dealer, “retail value” is sales price less any trade-in allowance.

So.....can the client add another $1000 to the IRS sales tax tables for the HUT, or can nothing be added because no "sales tax" was paid at the time of purchase??

Inquiring minds would like to know!

FE

[Burke]

I remember dealing with this a year or two ago on this board and John H participated, but I can't remember the outcome. I think there was some discussion as to whether this was a "fee" or "tax" based on valuation? If on valuation, it is like a personal property tax, IMO.

[FEDUKE404]

Only in NC

I remember dealing with this a year or two ago on this board and John H participated, but I can't remember the outcome. I think there was some discussion as to whether this was a "fee" or "tax" based on valuation? If on valuation, it is like a personal property tax, IMO.

Well, perhaps.....

If you buy a car from a dealer, the HUT is based upon the bottom-line sales price of the vehicle (I have a copy of the purchase agreement).

If you transfer a car title, or newly title a car (such as moving from a foreign state) with the NC DMV, the same HUT is based upon the value of the car as determined by some data source.

Either way, the HUT is 3% "of something."

Whether it can be considered a "sales tax" to be added to the IRS tables, or something else, remains unknown.

I don't know if this information helps or further muddies the NC waters.

FWIW: I am leaning toward the amount paid by my client NOT being a true "sales tax" (in theory or by DMV definition) and thus not eligible for addition to the IRS sales tax tables for NC. Of course, my guess is many NC tax folks will just blink, call me picky, and add the sales tax to get a bigger refund and generate a happier client.

FE

[Burke]

Well, guess what. I found the thread, and the original post was from you. It was in Feb 2009, but I don't know how to put the link here. Put NC Tax in the search box and you can find it. Not sure it was resolved, but you did say NCDOT website said it was not a tax. Looks like a tax to me.

[FEDUKE404]

Prior discussion

Well, guess what. I found the thread, and the original post was from you. It was in Feb 2009, but I don't know how to put the link here. Put NC Tax in the search box and you can find it. Not sure it was resolved, but you did say NCDOT website said it was not a tax. Looks like a tax to me.

Well, what I really said then was that it is not a SALES tax.

BTW: Here is the thread....not sure if anything was ever resolved....but senior moments obviously can occur....

http://forum.thetaxbook.com/showthread.php?11027-NC-has-no-auto-quot-sales-tax-quot

The comment by Snaggletooth was perhaps half correct ? ? ?

FE

[taxxcpa]

In Texas we have a Motor Vehicle Sales and Use tax. As a part of that law, there is also a "gift" tax and minimum sales tax amount to keep you from "selling" a car for $1.00 and just paying a few cents tax. That would seem to imply that the gift tax or minimum sales tax would be considered a sales tax--but of course the amount would be insufficient to increase the sales tax deduction to an amount in excess of the amount automatically allowed.

[FEDUKE404]

Cannot use auto sales tax ? ?

In Texas we have a Motor Vehicle Sales and Use tax. As a part of that law, there is also a "gift" tax and minimum sales tax amount to keep you from "selling" a car for $1.00 and just paying a few cents tax. That would seem to imply that the gift tax or minimum sales tax would be considered a sales tax--but of course the amount would be insufficient to increase the sales tax deduction to an amount in excess of the amount automatically allowed.

Now you ARE confusing me.

The whole point of this thread was whether I could ADD to the IRS sales tax tables the separate amount for "big ticket" items, such as the sales tax paid for the purchase of a new automobile.

Are you saying that is not permissible ?? (Even the IRS instructions for line 7 of the sales tax worksheet seem to confirm the auto sales tax, and a few other specific items, CAN be added to the table amount. There is a "limitation" issue, as related to the rate included in the sales tax tables, but that would not be relevant in this scenario.)

FE

[taxxcpa]

Now you ARE confusing me.

The whole point of this thread was whether I could ADD to the IRS sales tax tables the separate amount for "big ticket" items, such as the sales tax paid for the purchase of a new automobile.

Are you saying that is not permissible ?? (Even the IRS instructions for line 7 of the sales tax worksheet seem to confirm the auto sales tax, and a few other specific items, CAN be added to the table amount. There is a "limitation" issue, as related to the rate included in the sales tax tables, but that would not be relevant in this scenario.)

FE

I did not mean to imply that it could not be added.
My point was that if it is called a sales tax by the state, even if it was not based on a percentage of the price, it could possibly qualify as a sales tax. If it was very small there would be no point in adding it, but if it was large enough, the only question would be "is it a sales tax or something else?"

[buzzardbreath]

I Dunno

For anyone in NC hesitant to include this thing in the "Sales Tax" line, there is another line for "Other" Taxes.

It is my understanding that any tax assessed on VALUE would be deductible. Your tax is "sorta" a sales tax and "sorta" an Ad Valorem tax.

If you choose to deduct this as "other" taxes, then the sales tax amount will not encroach on your State Income Tax, as you get the larger of the two and not both.

Another twist: I'm no expert on NC taxes, but my guess is they will not let you deduct EITHER state income tax OR sales tax. But they MIGHT let you deduct it as "other" taxes. Or maybe NC doesn't allow itemized deductions at all in which case this paragraph is a moot point.

[FEDUKE404]

It is indeed a puzzlement !

For anyone in NC hesitant to include this thing in the "Sales Tax" line, there is another line for "Other" Taxes.

It is my understanding that any tax assessed on VALUE would be deductible. Your tax is "sorta" a sales tax and "sorta" an Ad Valorem tax.

If you choose to deduct this as "other" taxes, then the sales tax amount will not encroach on your State Income Tax, as you get the larger of the two and not both.

Another twist: I'm no expert on NC taxes, but my guess is they will not let you deduct EITHER state income tax OR sales tax. But they MIGHT let you deduct it as "other" taxes. Or maybe NC doesn't allow itemized deductions at all in which case this paragraph is a moot point.

You hit the nail squarely on the head!!

For the record, in this case the NC tax return issue is completely moot. Client, like many NC government/military retirees, already has zero taxable income for NC purposes. Think Bailey ruling. (Those legislative geniuses in Raleigh have totally changed the rules for 2014, with "adjustments" to federal AGI all over the place, but we'll save that topic for next year.)

Hence, the only "NC taxes" I can squeeze out, for line 5 on the federal Schedule A, are via the IRS sales tax tables. (Obviously client gets to claim ad valorem tax on residence and other vehicles.) I also do not think the HUT would qualify for listing as "other taxes" on line 8.

Then the IRS could toss two arguments at you:

Argument 1: It's not a "property tax" because the HUT paid at time of purchase is based upon the agreed contract, and can obviously vary due to the whims of the dealer/buyer. It sounds very much like a sales tax. Scratch "property tax."

Argument 2: It's not a sales tax because the HUT can be applied for events that have nothing to do with a sale, e.g. bringing car from non-NC prior residence to NC. In those instances, "a book" determines the value. It sounds very much like a property tax of the ad valorem type. Scratch "sales tax."

Cue Joni Mitchell:

"And go round and round and round
In the circle game."


FE

[FEDUKE404]

Question for 2016 purchases involving NC HUT

This golden oldie has arisen from the dust.

Client has minimal NC income tax liability, so entry on line 5 of Schedule A will definitely come from the IRS authorized sales tax tables.

Client spent some coinage on two new vehicles in 2016, and paid a total of $1,405 in NC "Highway Use Tax" (NC has no vehicle sales tax per se).

So, can the client add that dollar amount to the sales tax table amount and include the total on line 5 of Schedule A? Yes or no ?

NOTE: This is *NOT* a question related to deductible ad valorem property tax matters.

FE

[Super Mom]

I had the same question--in nc. My research found that someone deducted the HUT tax on the federal schedule A and the IRS disallowed it because is a one time tax, not yearly. I would assume their would be no deduction for that on NC either. Hope this helps some!!

[JohnH]

I haven't been treating the HUT as a sales tax, but I can't remember why...

[FEDUKE404]

HUT is or is not a sales tax

I had the same question--in nc. My research found that someone deducted the HUT tax on the federal schedule A and the IRS disallowed it because is a one time tax, not yearly. I would assume their would be no deduction for that on NC either. Hope this helps some!!

I would never try to "deduct" the HUT on Schedule A. IRS probably would not like that. . .

Issue at hand is whether the HUT is, indeed, a "sales tax" and can thus be added to the IRS sales tax table amounts for selected folks in NC who use those tables. That is the only place on Schedule A where the HUT might have some impact, i.e. client must be using the sales tax tables for line 5 of Schedule A.

The jury is still out. . .but they are deliberating the answer.

FE

[Super Mom]

North Carolina collects a Highway Use Tax (HUT) on vehicles instead of a state sales tax. The tax is assessed each time a title is transferred.

Money that is collected for the Highway Use Tax goes to the NC Highway Trust Fund and the State's General Fund. That money is then used to improve the roads of North Carolina.


I copied this from the NCDMV website, maybe you could use this?????