Axiom Home Page Forums General Discussion The Water Cooler tax question, won't hold you liable. :)

My wife purchased a brand new Honda Pilot in the fall of 2006. According to an article that was in the paper, it sounds like we can deduct not only the registration fee, but also the tax (sales?) we paid on this vehicle.

On the registration, there is a entry called "use tax" for like $1400 which was about what the sales tax was on our sales receipt from the dealership. There is also the entry for the regular yearly registration fee.

Anyway, we are trying to figure out where we put this on the tax forms. I am using TaxCut software, as I've done in previous years.

On the federal shedule A there is the section where you list your registration fee, licsense fee, other fees, etc.

Is the "use tax" what I'm supposed to enter here as "other tax", or do I just add this ammount to the registration fee? On the right hand side of the screen it says "What if I paid Sales Tax on the purchase of a car" but if you click on that it says, "not to enter sales tax here, we will ask you about this in a moment"...They never ask you about it in a moment...arrrrgggg

Thanks, if anybody has any ideas. I know your not in Iowa, but you might have ideas...

Randy, Although I'm not familiar with Tax Cut (I use Turbo Tax) There should be an area on the Federal form in taxes paid where you can Itemize your sales tax or take the standard sales tax deduction that would be variable by state, when we have bought a new car it was always a larger deduction using the sales tax from the vehicle. Vehicle registration fees have there own area.

I just did a search in Google, it appears the "use tax" is not the same thing as "sales tax", even though the ammounts are similar. I found that we can't deduct our sales tax from the vehicle, but it sounds like the "use tax" is part of your registration, and you only receive it the first year you purchase your vehicle.

Not sure if other states have a "use tax", but we are thinking we can just add this to the registration fee on our Schedule A?

Randy

I've never heard of use tax, but on my Federal Form it states you have the option to claim either state and local sales tax or state and local income tax as an itemized decduction on Schedule A. If you choose to claim the deduction for sales tax you can claim the state and local sales tax on big purchase items such as cars and boats. I'm not sure if there are limitations by state, but I would think the Federal guidelines should be the same.

After looking it up in the IRS publication, it states under whats new, is that general sales tax is no longer deductible. Sorry.

I think your referring to question 5, then yes we are taking the State and Local Income tax option. I'm referring to the "personal property tax" section, which is the next question.

Iowa might be in a select small group of states that have this "use tax", which is part of the registration fee...

Randy, I'll hit the books a bit, if necessary, but first since I'm not familiar with Iowa tax terminology I'll just comment that a "use" tax in my experience is equivalent to a sales tax, but involves a purchase in another state that wasn't subject to the home state(Iowa)sales tax. Was this your wife's situation?

Regardless of terminology, if it's in the nature of a sales tax(almost certain)it can be deducted as such on Schedule A. You'd put it on line 5 for state income tax, but write "ST"(for sales tax)on the dotted line. However, this brings up the key point that you can't deduct both state income tax and state sales tax; you have to choose the more beneficial. Since Iowa has a substantial state income tax, it would seem likely to be more to your benefit to deduct it, but you should check to see if your sales tax number, with the car tax added, would be bigger. No fee; Pro Bono.

No John, we purchased the vehicle in our local home town. I found some information on Google search on a "Iowa Sales and Use Tax Booklet" website.

Under "MOTOR VEHICLE USE TAX" section. This appears to match what you mentioned above.

The gross receipts from sales of vehicles subject to registration are exempt from sales tax but subject to motor vehicle use tax. The tax is paid upon registration to the county treasurer.


Under "Taxes and Tax Rates" section.
Use Tax

The use tax is complementary to sales tax. The general rule is when a transaction is subject to sales tax but occurs outside of Iowa for use in Iowa, (a taxable use) it is subject to use tax.

Two types of use tax are recognized by the State of Iowa: retailer’s use tax and consumer’s use tax. The difference between the two is who is initially responsible for remitting the tax.

Taxable Use

"Taxable use" is defined as the exercise of any right of ownership over tangible personal property by any person owning the property. This includes any taxable services rendered, furnished or performed for use in Iowa or if the product or result of service is used in Iowa.

Retailer’s Use Tax

Every out-of-state retailer who has "nexus" in Iowa and makes sales of tangible personal property or taxable services in Iowa must obtain a retailer’s use tax permit. The permit is free of charge.

"Nexus" includes a physical presence such as a store, warehouse, or sales staff. Contact Taxpayer Services for more information.

Consumer’s Use Tax

Persons regularly purchasing taxable goods or services for their own use in Iowa from an out-of-state source not collecting Iowa tax must register with the department to receive consumer’s use tax returns. No registration fee is charged and no permit is issued, but the returns are required in order to remit tax on those purchases.

Occasionally, a business will make a purchase for its own use and owe Iowa consumer’s use tax. The business can report the purchase and pay the tax due on its quarterly sales tax return on line 2 "goods consumed."

Others who make these kinds of purchases can pay the use tax to Iowa by sending a note listing the items purchased and their prices and explaining that the check is for use tax. Typical purchases of this type are those made from catalogs, magazines and television and radio vendors.

When sales or use tax is paid to another state on goods that are also subject to Iowa use tax, a credit may be allowed. The credit cannot exceed the Iowa use tax rate of 5 percent.

Consumers who make out-of-state purchases and pay another state’s sales tax pay only the difference of tax due to Iowa. For example: An Iowa business or resident purchases furniture from another state and pays a 4 percent sales tax to that state. Iowa’s use tax rate is 5 percent. The business or resident then owes Iowa 1 percent use tax.

I think I will call my mother-in-law tomorrow, she works for a few lawyers.

Yes, an Iowa attorney might know this off the top of his head, although because of the Iowa income tax very few Iowa returns might use the sales tax deductibility option(which was extended by Congress near the end of 2006 as part of the "Tax Relief and Health Care Act of 2006", but too late to be shown on Schedule A).

The material you quoted discusses a general use tax applicable to items bought outside Iowa and also an Iowa "Motor Vehicle Use Tax" which applies even to those bought in Iowa, in lieu of the sales tax. That being the case, without checking further, I'd think that it would be deductible federally as a state sales tax despite the different terminology, since it's in the nature of a sales tax. Of course, since you're using the state income tax deduction option you can't deduct it as a sales tax and there doesn't appear to be any other way to deduct it.