Is the fee a Tennessee car dealer charges to ship a vehicle between its own stores — so a customer can see and test-drive it before buying — subject to sales tax?

Plain-English summary

A car dealer with stores in several states, including Tennessee, lets customers request that a vehicle sitting at one of its other stores be shipped to the store nearest them so they can see it and test-drive it before deciding to buy. The customer signs a separate Transfer Contract and pays a distance-based Transfer Fee up front — before any commitment to purchase. The fee is non-refundable even if the customer never buys the car, and it has no effect on the eventual sales price if the customer does buy it. The dealer asked whether this Transfer Fee is subject to Tennessee sales and use tax. The Department said no.

Why delivery charges are usually taxable. Tennessee's sales and use tax reaches retail sales of tangible personal property, certain leases/rentals, and specifically enumerated services (Tenn. Code Ann. §§ 67-6-201, -202, -203, -205). As a general rule, freight, delivery, and other transportation charges are part of the taxable sales price of the property being sold (§ 67-6-102(81)(A)(iv); Tenn. Comp. R. & Reg. 1320-5-1-.71) — regardless of whether they're baked into the price, separately itemized on the same invoice, or billed separately.

Why this fee is different. That rule applies to delivering property to a purchaser as part of its sale. Here, the vehicle isn't being delivered to a buyer or moved because it was sold — it's relocated between the dealer's own business locations, purely so a prospective customer can inspect and test it. The person paying the Transfer Fee doesn't get title or possession of the vehicle as a result of the transfer. And the Transfer Contract stands on its own: it doesn't entitle the customer to anything but the shipping itself, it isn't conditioned on an eventual sale, and the purchase contract (if a sale later happens) doesn't refer back to it. Since the fee isn't paid in connection with a sale, lease, rental, or use of the vehicle, and shipping a car between a dealer's own stores isn't one of the services Tennessee specifically taxes under § 67-6-205, the Transfer Fee is not taxable.

What this means for you

Multi-location dealers (vehicles, boats, equipment, and similar inventory)

If you charge a separate, distance-based fee to move inventory between your own locations — before any sale, purely so a customer can inspect it, with the fee non-refundable and unconnected to the eventual sale price — this ruling supports treating that fee as not taxable. The facts matter: keep the transfer agreement legally separate from any later purchase contract (no cross-reference), make sure the fee doesn't change the item's ultimate sales price, and don't bundle in any other taxable benefit (test drives and inspections here were free).

Contrast with ordinary delivery charges

Don't read this too broadly. A charge to deliver a purchased item to the buyer as part of completing a sale is still part of the taxable sales price under § 67-6-102(81)(A)(iv) and Rule 1320-5-1-.71, whether or not it's separately stated. The line this ruling draws is pre-sale relocation between a seller's own locations versus delivery to a buyer as part of a sale.

Accountants and tax professionals

Remember this is a Revenue Ruling — advisory only, not binding on the Department, and not something any taxpayer (including the one who asked for it) can rely on. Treat it as a signal of the Department's reasoning on freight/delivery-charge taxability, not as authority you can cite to defend a position on audit.

Common questions

Q: Is a car dealer's inter-store vehicle transfer fee taxable in Tennessee?
A: Not under these facts. The Department ruled the fee isn't taxable because it's charged for moving the vehicle between the dealer's own stores for a customer's pre-sale inspection, not for delivering a purchased vehicle.

Q: Aren't delivery and freight charges normally taxable in Tennessee?
A: Yes — ordinarily they're part of the taxable sales price of tangible personal property (§ 67-6-102(81)(A)(iv); Rule 1320-5-1-.71), whether separately stated or not. This ruling turns on the transfer happening before and independent of any sale.

Q: Does it matter whether the customer ends up buying the transferred vehicle?
A: No. The facts state the Transfer Fee is non-refundable either way and never affects the eventual sales price, and the purchase contract doesn't reference the Transfer Contract.

Q: Can I rely on this ruling for my own situation?
A: No. It's a Revenue Ruling, which is advisory only and binds the Department for no one — not even the taxpayer who requested it. A Letter Ruling (a different category of guidance) at least binds the Department as to the specific taxpayer addressed; a Revenue Ruling does not.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• §§ 67-6-201, -202, -203 (privilege tax on retail sales and use of tangible personal property)
• § 67-6-205 (tax on leasing/renting TPP and on specifically enumerated taxable services)
• § 67-6-102(81)(A)(iv) (freight, delivery, and transportation charges are part of the taxable sales price)

Tennessee rules:

• Tenn. Comp. R. & Reg. 1320-5-1-.71 (freight/delivery charges are taxable regardless of how they're billed)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/12-08.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 12-08

WARNING
Revenue rulings are not binding on the Department. This presentation of the ruling in a
redacted form is information only. Rulings are made in response to particular facts
presented and are not intended necessarily as statements of Departmental policy.
SUBJECT
Whether fees paid by a potential purchaser for transferring a motor vehicle from one of the
retailer’s business locations to another of the retailer’s business locations is subject to
Tennessee’s sales and use tax.
SCOPE
Revenue Rulings are statements regarding the substantive application of law and statements of
procedure that affect the rights and duties of taxpayers and other members of the public.
Revenue Rulings are advisory in nature and are not binding on the Department.
FACTS
The Taxpayer is a motor vehicle retailer that maintains business locations in multiple states,
including Tennessee. Customers may purchase motor vehicles from the Taxpayer directly at
the Taxpayer’s business locations. On many occasions, a vehicle meeting the customer’s
requirements is not available at the Taxpayer’s store in the customer’s immediate vicinity. Most
customers are unwilling to purchase a motor vehicle sight unseen and without taking a test
drive.
When a customer is interested in viewing and testing a motor vehicle that is not located at the
Taxpayer’s nearest store, the Taxpayer will offer the customer the option of having that motor
vehicle shipped to one of the Taxpayer’s business locations near the customer’s home. This
transfer is done under the terms of a specific and separate transfer agreement (the “Transfer
Contract”) between the Taxpayer and the customer. The Taxpayer charges its customers a fee
(the “Transfer Fee”) for this service.
The transfer/shipping process for a vehicle under the circumstances described above involves
the following six steps:

1. A Customer Contacts the Taxpayer:
   A customer will make contact with a Taxpayer’s store located near the customer’s
   residence. In larger markets, the Taxpayer may have more than one store located within
   easy driving distance of the customer’s home. The customer may call the Taxpayer’s sales
   consultant or submit a Vehicle Transfer Form from a Vehicle Fact Sheet. If the customer
   chooses to submit a Vehicle Transfer Form online, a sales consultant will contact the
   customer to answer any questions that the customer may have about the vehicle and to
   make sure that the vehicle will meet the customer’s specific needs.

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2. Pre-Transfer Inspection:
The sales consultant will inspect the automobile sought by the customer and provide
answers to the customer’s questions at no charge to the customer.

3. Confirmation:
   The sales consultant will then contact the customer to answer any additional questions. If
   the vehicle is not at the customer’s delivery location, the sales consultant will confirm the
   customer’s order to have the vehicle transferred.
4. Vehicle Transfer Contract and Transfer Fee:
   In order to have a vehicle transferred to a location near the customer’s residence, the
   customer is required to enter into a contract (the “Transfer Contract”) with the Taxpayer
   providing for the transfer of the vehicle for a stated Transfer Fee. The transfer is requested
   by the customer and the Transfer Fee is paid prior to any commitment to purchase the
   vehicle. The Transfer Fee paid is based on distance that the vehicle is transferred. The
   Transfer Fee is not based on the sale price of the vehicle transferred and the transfer
   transaction is treated as a separate from the sale of the vehicle.
   If the customer chooses to purchase a transferred vehicle, the ultimate sales price of the
   vehicle is consistent with the sales price at the vehicle’s original location. The Transfer Fee
   neither increases nor decreases the ultimate sales price of the vehicle. The Transfer Fee is
   separately invoiced to the customer and is treated as a separate transaction from the sale of
   the vehicle.
5. Payment of the Transfer Fee:
   If the customer executes a Transfer Contract, the customer is required to:
   a. Bring a check for the full amount of the Transfer Fee to the Taxpayer’s store location
   where the vehicle will be transferred; or
   b. Pay the Transfer Fee by telephone using a credit card.
6. Reservation and Transfer:
   Once the Taxpayer receives the Transfer Fee, the sales consultant verifies that the vehicle has
   been reserved and it is scheduled for transfer.
   The Transfer Contract pertains only to the shipping of a vehicle to another location. No other
   services are provided in exchange for the Transfer Fee. For example, execution of the Transfer
   Contract does not entitle the customer to inspect the vehicle on location, to obtain a vehicle fact
   sheet or to obtain any other service. The Transfer Contract is not dependent upon the ultimate
   sale of the vehicle or any other agreement. Frequently a vehicle that has been transferred is
   not purchased by the customer who executed a Transfer Contract and paid the Transfer Fee. In
   such situations, the Transfer Fee is not refunded to the customer and the vehicle is sold at a
   later time to a different customer.

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If the customer purchases the transferred vehicle, the purchase is executed under a separate
purchase and sale contract that neither refers to the Transfer Contract nor incorporates the
Transfer Contract by reference. Under no circumstances does the existence of a Transfer
Contract or payment of a Transfer Fee impact the sales price of the motor vehicle. If a
customer pays a Transfer Fee to view and inspect a vehicle, the Transfer Fee is not deducted
from the vehicle’s sales price or considered to be a part of the vehicle’s sales price.
QUESTION PRESENTED
Under the circumstances described in the Facts presented, are Transfer Fees paid pursuant to
a Transfer Contract subject to Tennessee sales and use tax?
RULING
No.
ANALYSIS
The Tennessee sales and use tax is levied on the privilege of engaging in the business of
selling tangible personal property at retail in Tennessee or using or consuming tangible personal
property in this state. Tenn. Code Ann. §§ 67-6-201, 67-6-202 and 67-6-203. In addition, the
tax is levied on the privilege of engaging in the business of leasing or renting tangible personal
property in Tennessee. Tenn. Code Ann. § 67-6-205. The tax is also levied on the sales price
of certain taxable services in Tennessee. Tenn. Code Ann. § 67-6-205.
Freight, delivery or other transportation charges are considered part of the sales price of
tangible personal property that is subject to the Tennessee sales and use tax. Tenn. Code Ann.
§ 67-6-102(81)(A)(iv) and Tenn. Comp. R. & Reg. 1320-5-1-.71. This is true regardless of
whether the freight, delivery or other transportation charges are included in the sales price of the
tangible personal property sold, separately itemized on the invoice for the sale, or billed
separately from the tangible personal property to which the charges pertain.
However, in the Facts presented the tangible personal property, which consists of a motor
vehicle, is merely being moved/shipped from one of the Taxpayer’s business locations to
another of the Taxpayer’s business locations at the request of a potential buyer. This is being
done to facilitate inspection by the potential buyer. The vehicle is not being delivered to a
purchaser and is not being transferred as a result of its sale. The person paying the Transfer
Fee does not obtain title or possession of the vehicle as a result of the vehicle’s transfer from
one of the Taxpayer’s locations to another of the Taxpayer’s locations.
Execution of the Transfer Contract does not entitle the customer to inspect the vehicle on
location, to obtain a vehicle fact sheet or to obtain any other service. The Transfer Contract is
not dependent upon the ultimate sale of the vehicle or any other agreement. If the vehicle
transferred is ultimately sold, the sale contract neither refers to the Transfer Contract nor
incorporates the Transfer Contract by reference.
The Transfer Fee charged is based on the distance that the vehicle is moved rather than the
sales price of the vehicle and is non-refundable regardless of whether the person requesting the
vehicle’s transfer purchases the vehicle. If the person who has requested transfer of the vehicle
does purchase the vehicle, the purchase price is negotiated without regard to the Transfer Fee
that has been paid. In such a case, the Transfer Fee has no impact on the price for which the

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vehicle is ultimately sold and does not operate to increase or decrease the amount that the
purchaser pays for the vehicle.
Clearly, the Transfer Fee is not paid pursuant to the sale, use, lease or rental of tangible
personal property. The Transfer Fee charged by the Taxpayer and paid by the person
requesting the vehicle’s transfer is for the service of moving/shipping a specific motor vehicle
from one of the Taxpayer’s business locations to another of the Taxpayer’s business locations.
This service is not one of the services specifically enumerated in Tenn. Code Ann. § 67-6-205
as being subject to Tennessee sales and use tax.

Arnold B. Clapp
Special Counsel to the Commissioner
APPROVED:
DATE:

Richard H. Roberts, Commissioner
June 25, 2012

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