The Indiana Department of Revenue has taken a new position regarding whether documentation fees are subject to sales tax. It is effective April 2, 2019.
As always, fees for services performed after the transfer of a vehicle or trailer are not considered part of the sales price; therefore, they are NOT subject to sales tax. (For this purpose, the transfer takes place upon physical delivery as a purchaser takes possession and control of the property, regardless of whether the title has yet been transferred.) The dealer must maintain adequate records noting all services pertaining to the fees charged. The records must also detail any services performed after the transfer in order to be exempted from sales tax. Fees charged for services performed prior to a customer taking physical possession of the vehicle or trailer ARE subject to sales tax. Doc fees have historically been treated as a service NOT subject to sales tax. This is no longer the case and the change stems from the state allowing dealers to charge a “convenience fee” relative to the titling services they offer.
As a reminder, the General Assembly added IC 9-14.13-3 effective July 1, 2016, which established a separate “convenience fee” allowing dealers to charge for services that, in the past, had been excluded from the retail unitary transaction and were reflected by the documentation fee. As such, fees qualifying as separate “convenience fees” are NOT subject to sales tax. While dealers may still charge a separate documentation fee [in addition to the convenience fee], any other services attributable to documentation fees will be considered seller service charges, which are necessary for sale completion as per IC 6-2.5-1-5(a)(3) and these WILL be subject to sales tax.
The bottom line: effective April 2, 2019, a dealer’s Documentation Fees are most likely subject to sales tax.
If you have questions on the Information Bulletin #28S policy changes, please contact Rex Collins at 317.504.7900 or RCollins@hbkcpa.com