Independent automotive dealers have a lot on their plates when it comes to running their business and they may not have time to understand all the finite details that come with their sales tax reporting obligations.  While most dealers certainly understand that their wholesale vehicle sales are exempt sales for resale and that their retail sales are subject to tax, they may not be familiar with a tax credit that is both easy to claim and applies to almost every vehicle dealership, both new and used.  Most dealerships are also familiar with resale certificates that they issue to their vendors and to those that perform repairs and reconditioning of vehicles prior to sale.  What many auto dealerships fail to recognize, however, is that they should issue resale certificates to their fuel vendors.

Every dealership purchases fuel to operate the vehicles they sell for a variety of reasons; whether that be to transport vehicles from one vendor to another, for reconditioning, or for test drives.  The fuel that is put into the vehicle is almost always passed on to the customer when they purchase the vehicle.  The fuel that was purchased and resold to the customer is almost always tax paid at a local station close to the dealer.  If a dealer fails to issue a resale certificate to the gas station, however, the fuel that is purchased is tax included and as a result, an automotive dealer can claim a tax-paid-purchase-resold deduction for the fuel that was resold to the customer with the vehicle.  For some of our clients, this unclaimed deduction has amounted to thousands of dollars in tax over the course of three years.

There are a few caveats to understand when claiming the credit on a sales tax return.  First, fuel is subject to a partial exemption, so it is not taxed at the full sales tax rate like most tangible personal property.  Second, fuel that is consumed by the dealership in the course of its operations is not resold, so it is not subject to the deduction.  A couple of quick computational adjustments can usually resolve these issues and the deduction is a valid offset to the taxes that a dealership will otherwise have to pay.

If you have questions about how to claim the deduction for your business, or if you are currently undergoing an audit and need some advice on how to discuss this issue or others with the auditor, please feel free to contact us at to receive a free consultation in order to see how we may be able to assist you.

Mitchell Stradford

Mitchell Stradford

Mitchell Stradford is a former senior sales and use tax auditor with the California State Board of Equalization. Mitch leads McClellan Davis’ efforts to advocate on behalf of the cigarette and tobacco industry. He graduated from California State University Sacramento with a B.S. in Business Administration with a concentration in accountancy. Email Mitchell

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