Detailed New York Development
The New York Supreme Court, Appellate Division recently addressed whether intercompany transfers of title to loaner cars constituted a retail sale for sales and use tax purposes. The taxpayer, a wholly-owned subsidiary of a parent company, performed administrative tasks, such as accounting, human resources, and record retention for the parent company. The parent company was an automobile sales and service company that owned a number of luxury car dealerships. The dealerships maintained a fleet of loaner cars that were used by customers while their cars were being serviced. When a vehicle was moved into loaner status, it was titled in the name of the taxpayer, while the dealerships maintained physical possession of the vehicle and the title documentation. However, before a loaner car exceeded a specified mileage restriction or a certain amount of time lapsed, the vehicles were generally returned to the dealer’s inventory. At that time title to the loaner car was signed over to the dealership by a dealership employee on behalf of the taxpayer. On audit, the Department took the position that the transfers of title to the loaner cars to the taxpayer were taxable retail sales. Although the Department later granted the taxpayer a trade-in credit when an old loaner vehicle was swapped for a new loaner vehicle on the same day, the taxpayer appealed the sales tax assessment.
Under New York law, a transaction where title to a loaner car is obtained is presumed to be taxable. By statute, a “sale” is defined as “any transfer of title or possession…in any manner or by any means whatsoever for consideration.” The taxpayer argued that transfers of the loaner cars to the taxpayer were not taxable because no consideration was exchanged. However, the court disagreed, holding that because the taxpayer assumed liability for personal injury related to the loaner cars and provided administrative benefits to the dealerships, there was evidence of consideration. Thus, the transfer constituted a taxable retail sale of tangible personal property. The court noted that it was “troubled” by what it considered a technical application of the law that was arguably not consistent with the intent of the sales tax law to tax purchases by ultimate consumers. Nonetheless, the court was compelled to uphold the Tribunal’s decision because it had a rational basis and was supported by substantial evidence, despite the existence of evidence that could also have supported a contrary result. The taxpayer also argued that it should be entitled to a trade-in credit for all swaps, not just those occurring on the same day of the transaction. The court, however, held that the taxpayer had failed to meet its burden to show that the Department’s determination was unreasonable. For more information on CLM Associates, LLC. v. New York State Tax Appeals Tribunal, please contact Judy Cheng at 212-872-3530.