On a new car, which amounts are taxed -- the trade-in credit, manufacturer's rebate, doc fee, DMV title/registration fees, and the extended warranty?

Plain-English summary

An Orange County buyer purchased a new vehicle (negotiated price ~$31,644) and asked how sales tax applies to five things: the trade-in credit ($5,500), the manufacturer's rebate ($1,500), a $75 documentation fee, $247.50 in DMV registration/title fees, and a $150 extended warranty.

The Office of Counsel concluded:

• Trade-in credit -- not taxed (reduces the price). "Receipt" excludes any credit for tangible personal property accepted in part payment and intended for resale (Tax Law 1101(b)(3); 20 NYCRR 526.5(f)). If the dealer intended to resell the trade-in, the $5,500 trade-in credit is deducted from the taxable receipt.
• Manufacturer's rebate -- taxed (doesn't reduce the price). A manufacturer's rebate is not deductible from the taxable receipt, whether assigned to the dealer or paid to the buyer. The manufacturer is subsidizing the purchase; the price paid to the seller is unchanged, so the full sale price (including the $1,500) is taxed (TB-ST-860).
• Documentation fee -- not taxed if separately stated and reasonable. A dealer's doc fee to prepare title/registration paperwork is not taxable if separately stated and reasonable; it's presumed reasonable if at or under the DMV cap of $75 (15 NYCRR 78.19(c)(2); Pub. 838). The $75 fee qualifies if separately stated.
• DMV title/registration fees -- not taxed if separately stated and exact. If the dealer obtains title/registration for the buyer and separately states the actual amounts paid to DMV, those fees are not taxable.
• Extended warranty -- taxable. Buying a maintenance/service contract is a taxable transaction (20 NYCRR 527.5(c)), so the $150 extended warranty is taxable -- whether or not separately stated.

What this means for you

Car buyers and dealers

The two items people most often confuse work opposite ways: a trade-in lowers the taxable price, but a manufacturer's rebate does not. You pay tax on the full negotiated price before the rebate, minus the trade-in value.

Fees: separately state the pass-throughs

Doc fees (up to the $75 DMV cap) and actual DMV title/registration charges escape tax only if separately stated (and, for DMV fees, in the exact amounts paid). Lump them into the price and they can become taxable.

Extended warranties are always taxable

An extended warranty / service contract is taxable in New York regardless of how it's billed. Don't assume separately stating it helps -- it's taxable either way.

Common questions

Q: Does my trade-in reduce the sales tax on a new car?
A: Yes -- if the dealer takes it for resale, the trade-in credit is deducted from the taxable price.

Q: Does a manufacturer's rebate reduce the taxable amount?
A: No. The full sale price is taxed; the rebate just lowers your out-of-pocket cost, not the price paid to the dealer.

Q: Are doc fees, DMV fees, and the extended warranty taxable?
A: The doc fee (up to $75) and the exact DMV title/registration fees aren't taxable if separately stated. The extended warranty is taxable whether or not separately stated.

Citations and references

• Tax Law section 1105(a) (sales tax on tangible personal property)
• Tax Law section 1101(b)(3) (definition of receipt; trade-in credit excluded)
• 20 NYCRR section 526.5(f) (trade-in accepted for resale)
• 20 NYCRR section 527.5(c) (maintenance/service contracts taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a14_7s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-14(7)S
Sales Tax
January 31, 2014

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S120413A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
Redaction Redaction Redaction Redaction Redaction Redaction. Petitioner asks whether the trade-in
credit allowed by a car dealer upon purchase of a new vehicle is subject to sales tax. Petitioner also
asks whether the amount of a manufacturer’s rebate on the purchase of a new vehicle is subject to sales
tax. Petitioner further asks whether amounts paid as a document fee, as registration and title document
fees, and for an extended warranty are each subject to sales tax.
We conclude that the trade-in credit is not subject to sales tax, but the amount of the
manufacturer’s rebate is subject to sales tax. We further conclude that the amount paid for an extended
warranty is subject to sales tax but, subject to the caveats identified below, the amounts paid as a
document fee and as registration and title document fees are not subject to sales tax.
Facts
Petitioner resides solely in Orange County, New York. He bought a new vehicle in 2012 from
an Orange County auto dealership. Petitioner supplied the following information on the specifics of
the sale. Petitioner believes the negotiated purchase price of the car was $31,644. The dealer valued
Petitioner’s vehicle traded in on the purchase of the new vehicle at $5,500 and gave Petitioner a credit
for that amount toward the purchase price. The manufacturer’s rebate for the new vehicle was $1,500.
Petitioner was charged $472.50 in “fees,” consisting of a $75 fee for paperwork completion by the
dealer (known as documentation fees), $247.50 in Department of Motor Vehicles fees for registration
and title documents, and $150 for an extended warranty on the vehicle. Petitioner asks whether these
amounts are subject to sales tax.
Analysis
Section 1105(a) of the Tax Law imposes sales tax on the “receipts from every retail sale of
tangible personal property, except as otherwise provided in this article.” Section 1101(b)(3) of the Tax
Law defines “receipt” as the “amount of the sale price of any property . . . taxable under this article,
valued in money, whether received in money or otherwise, including any amount for which credit is
allowed by the vendor to the purchaser . . . but excluding any credit for tangible personal property
accepted in part payment and intended for resale.” See also 20 NYCRR § 526.5(f). If the dealer
intended to resell the vehicle traded in by Petitioner, the amount of the trade-in credit allowed to
Petitioner on the purchase of the new vehicle would not be subject to sales tax and should have been
deducted from the taxable receipt.
“Manufacturer’s rebates, such as a rebate on the purchase of a car or an appliance, are not
deductible from the taxable receipt, whether or not the rebate is assigned to or paid to the seller at the

-2-

TSB-A-14(7)S
Sales Tax
January 31, 2014

time of sale, or later paid directly to the purchaser by the manufacturer. Even though the purchaser’s
out-of-pocket expense is reduced by the amount of the rebate, the price paid to the seller is not. In
effect, the manufacturer is subsidizing the consumer’s purchase, and the full sales price is subject to
sales tax.” TB-ST-860, Taxable Receipt -- How Discounts, Trade-ins, and Additional Charges Affect
Sales Tax. Thus, the manufacturer’s rebate amount is included in the taxable receipt for Petitioner’s
new vehicle.
Dealers may charge fees referred to as “documentation fees” to prepare the paperwork needed
to obtain titles and registrations for vehicles. These fees are not subject to tax if the amount of the fee
is separately stated and reasonable. Documentation fees “will be presumed reasonable if the amount is
equal to or less than the amount permitted under the New York State Department of Motor Vehicles
rules.” See Publication 838, A Guide to Sales Tax for Automobile Dealers, at 12. The Department of
Motor Vehicles’ regulations state that the “fee charged by the dealer may not exceed $75.” See 15
NYCRR § 78.19(c)(2). Petitioner stated that the documentation fee charged to him was $75, which is
“reasonable” by the definition above. If the $75 documentation fee was separately stated on the
invoice, it would not be subject to sales tax.
A dealer may also charge fees referred to as “title and registration” fees. “If a dealer obtains
the vehicle’s title and registration on behalf of the purchaser, and the dealer separately states the actual
amount of the title and registration fees on the invoice or other statement of the price given to the
customer, the fees are not subject to sales tax.” See Publication 838, supra, at 13. If the dealer
obtained the title and registration for the new vehicle for Petitioner, and the amount charged for the
title and registration are separately stated and in the exact amount paid to DMV for the title and
registration, those fees would not be subject to sales tax.
Regulation § 527.5(c) provides that the “purchase of a maintenance or service contract is a
taxable transaction.” Thus, the dealer’s charge to Petitioner for the extended warranty is subject to
sales tax, regardless of whether it is separately stated.

DATED: January 31, 2014

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts
set forth therein and is binding on the Department only with respect to the person or entity
to whom it is issued and only if the person or entity fully and accurately describes all
relevant facts. An Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific time period at issue
in the Opinion. The information provided in this document does not cover every situation
and is not intended to replace the law or change its meaning.