News & Announcements

Posted Wednesday, October 24, 2007 by judy

MISSING DRIVE OUT CERTIFICATES CAN RESULT IN TAX LIABILITY

At least two Birmingham area dealers have learned that failing to maintain "Automotive Vehicle Drive OUt Certificates for Nonresidents" can result in tax liability for the dealership.

In 1989, the association successfully persuaded the Legislature to amend the state sales tax law to allow dealers to avoid collecting state, county, and city sales taxes on sales to residents of other states by following a certain procedure that would allow the purchaser to take possession of the vehicle at the dealership. Prior to passage of the law, the collection of sales tax could only be avoided if the dealership physically delivered the vehicle to the consumer outside of the state.

The law provides that vehicles that "will be registered or titled outside Alabama, that are exported or removed from Alabama within 72 hours by the purchaser of his or her agent for first use outside Alabama are not subject to the Alabama sales tax." It further provides that "in order for the sale to be exempt from Alabama tax, the information relative to the exempt sale shall be documented on forms approved by the Revenue Department.

In a regulation implementing the law, the Department of Revenue wrote: "the certificate...must be executed by both the seller and the purchaser of the purchaser's agent at the time of the sale. A certificate executed subsequent to the time of the sale shall be invalid and the Alabama sales tax shall be due from the seller on the sale for which the invalidated certificate was prepared.

In other words, it is impersative for dealerships to complete and retain a copy of the Drive Out Certificate at the time of sale. If the certificates cannot be located during a sales tax audit, the dealership will be responsible for paying the tax.