First, re-read this article: Click Here.
Let me give a couple of examples:
Dealer in Florida calls and asks me to help him remove the Sales Tax from his Dealer Fee. He says his CPA advised him that since delivering a car is a “service,” the fee is non-taxable.
According to the Florida Department of Revenue’s GT400400 (available here) they specifically state that Dealer Prep is a taxable item. I tried to give the dealer the link, even told him what page to find the wording on. He got angry, and told me that his CPA should know what he is talking about, and to just “fix it” so he is legal. I asked the dealer again to have his CPA read the GT400400, or at least have him call the Department of Revenue or guidance. He refused. I showed him where to remove the tax on the fee.
Same dealer calls me back 6 months later. The DOR sent him a notice that says he has underpaid his sales taxes, by the amount of tax on the Dealer Fee, and not only wants the money paid immediately, they have also penalized him. Now, the dealer wants to know if I am going to pay his penalties and taxes because, and I quote, “let him do it wrong.”
Short answer: No. I tried to get him to put on his snake boots, and told him that he was going to get bit. All he could see was saving a few bucks per sale.
Too many people let their greed blind them to the truth.
A dealer called me once complaining that her state Used Car License Board is considering suspending or revoking her license. Why? Because she thought that when it is a Cash Deal, that you just hand the title to the customer, and let them process it, and pay the sales taxes. I asked her whether this topic was covered when she got her license, and she said “They may have touched on it.”
Even if the instructor lightly skimmed that bit, it is still important to know. If you are in doubt, ASK.
The IRS requires used car dealers to pay income taxes on the Accrual Method on the sales of the cars. One dealer in the Southeast decided that a Buy Here Pay Here did not constitute a Sale, and decided to pay his taxes only on the amount he collected (Cash Method.) Three returns later, the IRS realized what was going on and sent him a bill, plus interest, plus penalties. They told him he could not get a break on the penalties or interest because he either should have known he was wrong, or failed to get qualified advice that would have shown him he was wrong. In other words, No Excuses.
The dealer was furious, but had only himself to blame. He was one of those who felt that he did not “need” a CPA.
These people ignored the dangers, and wandered off into the swamp without protection or the information needed. When someone tried to hand them information, they batted it away like a nuisance insect.
Most responsible CPA’s would have welcomed seeing a state document that explained the tax question, and spelled it out.
Stop ignoring the warning signs. Start reading the rules, and follow them. You’ll only have more profits in the long run, and who doesn’t want that?
Thanks as always for the visit.
BTW: I’ve been asked if I take suggestions for topics. Yes. Send them in. I’d also appreciate any feedback on the blog.