Record Retention: Agency Rules
We discuss in the pre-licensing course several records that must be maintained in the deal jacket for a specific length of time. Some agencies even have specific rules about where the records can be stored if you are storing physical documents.
A dealer must keep a complete record of all vehicle purchases and sales for a minimum period of 48 months and make those records available for inspection and copying by a representative of the department during business hours. Dealers must maintain records reflecting purchases and sales for at least the preceding 13 months at the dealer’s location. They may keep records for prior time periods off-site at a location within the same county.
A motor vehicle seller finance licensee must keep records for four years from contract date, three years from the last payment received, or two years from the final entry made, whichever is later. Upon notification of an examination the licensee must be able to produce, or access required books and records within a reasonable time at the licensed location or registered office on the license.
The Comptroller of Public Accounts
A dealer must keep records for four years from the last payment received, or four years from the date of sale whichever is later.
Additional Record Retention Notes
A few more words about record retention. First of all, you may keep all records electronically after the sale. You must keep original hard copy titles in a secure location at the dealership or within the same county, prior to the sale. If you have more than one location, then each store should keep its records at its own location.
Special Inventory Tax
Special Inventory Tax, also known as vehicle inventory tax, has nothing to do with your land, property tax, motor vehicle sales tax, or general sales and use tax. It is a property tax on your INVENTORY, commonly called ad valorem.
The inventory appraisal is based on the PRIOR YEAR’s sales. There are two types of filings associated with SIT: your annual declaration and your monthly SIT statement.
Annual SIT Declaration
We’ll start with your annual SIT declaration.
If you’re a new dealer, your INITIAL filing is due within 30 days of being licensed. For EXISTING dealers, your annual SIT declaration is due by January 31st of each year. The original goes to the County Appraisal District and a copy goes to the tax assessor.
The annual declaration summarizes your sales for the PREVIOUS calendar year. There’s no payment associated with the annual declaration. And you must file this even if no vehicles were sold.
Monthly SIT Declaration
Now let’s discuss the monthly SIT statement and payment.
You’re going to report and pay taxes on the previous month’s sales by the 10th of each subsequent month. So your sales for a March month must be reported by April 10th.
A statement has to be filed even if no sales are made in that month. Now, for a first-year dealer, keep in mind there are no tax dollars due in that first year you are open. You just file your monthly statement.
The original statement on the monthly side is filed with the tax assessor-collector and a copy is filed with the county central appraisal district. This form, 50-246, and a very thorough guide can be found on the Comptroller’s website titled Motor Vehicle Dealers Special Inventory.
Special Inventory Worksheet
OK, let’s do a little exercise with special inventory tax showing when payments are made, how they are calculated and what the impact might be to your bottom line. First, we’ll start with the idea that we have a dealership that opened on June 15th of 2013. That same dealership then closed on January 2nd, 2016. Over the 3 years that it was open, the dealership sold this many dollars in inventory. Now, the unit property tax factor is the amount by which you multiply your sales to determine how much special inventory tax you owe; typically, it is around 0.2%. You’ll determine that number exactly from your central appraisal district or your tax assessor collector, but for this exercise we’ll use the round number of 0.002. So, let’s get started.
It’s 2012, keep in mind our dealership didn’t open until June 15, 2013 so the dollar sold is clearly zero, SIT owed has got to be zero, collected zero, and the difference of course is zero. Now in 2013, what did we sell? Well as you can see here the answer is $300,000 worth of inventory. OK, SIT owed? the answer here is zero; the reason is, as you’ll remember from earlier in this section, you do not owe any special inventory tax in the first year that you are open so your SIT collected, that also better be zero. If you don’t owe it, you shouldn’t collect it. Zero minus zero is still zero.
Now we go to 2014. The dollar value sold that year was $500,000. SIT owed? Keep in mind the vehicle inventory tax is calculated on the previous year’s sales so you’ll take your unit property tax factor of 0.002, multiply it by $300,000 and find that you have $600. OK, now, what are you collecting? Keep in mind that you collect special inventory tax in the present tense as the year goes on in a transaction by transaction basis. Calculated at 0.002, if you have $500,000 in sales that would be $1,000.
The difference here is that you collected $400 more than you owe. The next year, 2015, you sold $400,000 in inventory. What did you owe that year? Well, keep in mind you owed from the previous year, you owe from what you sold in 2014 so you would owe in this instance $1,000. What did you collect? Keeping in mind you collect in the present tense, so you collected on $400,000. That means you collected $800. The difference is negative $200.
Now, when you had an overage, that money was gone, and you were not able to recover it. If you submit too little in SIT, the county will bill you for the difference. Lastly 2016. Now this year, keep in mind we closed on January 2nd so we essentially had no sales for that year. SIT, what do we owe? that’s right, you owe on the previous year’s sales of $400,000 so you would owe $800. SIT collected? Well, clearly with no sales, you collected no money in 2016 so you collected zero; that means you left it $800 short, and that bill will be sent to you so keep in mind with SIT you have to understand the nature of when taxes will impact you and what an overage or shortage will mean for your business.
Failure to File Annual SIT
The state takes Special Inventory Tax very seriously! Let’s look at the penalties associated with the failure to file your ANNUAL SIT declaration.
You can be hit with a $1,000 penalty for even being one day late, plus $1,000 for each additional month or portion of a month that the annual declaration is late. They can attach a tax lien to your business personal property and a misdemeanor offense charge is also possible.
Remember, new dealers must file the annual SIT within 30 days of receiving your GDN not 30 days after you open or 30 days after you sell your first vehicle.
You MUST stay regularly and actively engaged in business and that is defined by selling a minimum of five vehicles per year.
The chief appraiser of the central appraisal district in the county MUST report to TxDMV any dealer selling fewer than 5 vehicles a year. That will cause TxDMV to begin the license termination process.
Failure to File Monthly SIT
Now let’s look at the penalties associated with failure to file your monthly SIT statement.
If you fail to file by the 10th of each month – even if you hadn’t sold any vehicles that month – it’s a $500 penalty on that first day! This penalty multiplies, so $500 for each additional month or portion of a month that you’re late. If you don’t file by the 10th of January, that is $500, then if you don’t file by the 10 of February that’s another $500. Now, if you still haven’t filed the January SIT that is another $500 and every month thereafter. It can add up fast. Make sure you are filling your SIT.
Again, a misdemeanor is available to the authorities here, and a tax lien can attach to your business personal property. That’s just for failing to remit the monthly statement itself!
If you did sell vehicles – and therefore have tax due – 5% of the taxes due is assessed as a late fee AND another 5% if not paid within 10 days. Many counties AGGRESSIVELY enforce SIT collection.
It is critically important to understand your SIT obligations. Many dealership management software packages will assist you in reporting your monthly and annual SIT.