ARKANSAS SUPREME COURT UPHOLDS DF&A ASSESSING SALES TAX FOR MISUSE OF DEALER’S EXTRA LICENSE PLATES
Summary: On Thursday, March 28, 2024 in a split decision, the Arkansas Supreme Court issued an opinion that impacts all dealers. Reversing a Circuit Court decision, the Supreme Court ruled that use of vehicles in a dealership’s inventory with dealer’s extra license plates by persons not authorized by statute or rule to use these plates amounts to a withdrawal from stock or use and will trigger assessment of sales tax based on the value of the vehicle.
Background: During routine tax audits within the past three years, two Arkansas dealers were assessed sales tax for alleged misuse of dealer’s extra license plates. The sales tax assessments were appealed to Jefferson County Circuit Court and Clark County Circuit Court. The Jefferson County Circuit Judge reversed DF&A’s assessments of sales tax. DF&A appealed that decision to the Arkansas Supreme Court.
DF&A’s position is the use of vehicles with dealer’s extra license plates by persons not authorized by statute or rule to use them amounts to “withdrawal from stock or use” of the vehicles within the meaning of Ark. Code Ann. § 26-52-322, thus giving rise to the gross receipts tax based on the value of the vehicle. The Supreme Court agreed with DF&A.
Relevant Law and Rule: According to Ark. Code Ann. § 27-14-1704, (Dealer’s Extra License Plates):
(b) The dealer’s extra license plate may be used only by the dealer, manager,
or salesperson of the dealer and only for the following purposes:
(1) To drive to and from work;
(2) For business or personal trips inside or outside the dealer’s county of
residence;
(3) To transport the vehicle; or
(4) To demonstrate the vehicle.
In addition, DF&A Rule 2005-7 explains who, in addition to the dealer, may use dealer’s extra license plates:
- Manager, Sales Manager, or Salesperson.
- As used in this rule, “Manager” is any person other than the dealer who is responsible for the overall management of the dealership.
- “Sales manager” is any person other than the dealer who is responsible for the management of the salespersons of the dealership.
- “Salesperson” is:
(1) Any person who:
(a) Is employed as a salesperson by a motor vehicle dealer whose duties include the selling or offering for sale of motor vehicles;
(b) For compensation of any kind, acts as a salesperson, agent or representative of a motor vehicle dealer;
(c) Attempts to or in fact negotiates a sale of a motor vehicle owned partially or entirely by a motor vehicle dealer; and
(d) Uses the financial resources, line of credit, or floor plan of a motor vehicle dealer to purchase; sell, or exchange any interest in a motor vehicle, or
(2) Anyone who for compensation of any kind operates as a salesperson, broker, agent, or representative of a used motor vehicle dealer, or any person who attempts to or in fact negotiates a sale of a vehicle owned partially or entirely by a used motor vehicle dealer, or a person or drafter using the financial resources, line of credit, or floor plan of a used motor vehicle dealer to purchase, sell, or exchange an interest in a used motor vehicle.
Links to the relevant sections of Ark. Code Ann. § 27-14-1704 and DF&A Rule 2005-7 for your review.
Dealers should take all efforts to ensure they are in compliance with these above sections of statute and DF&A Rule. As more information and guidance becomes available, we will keep you updated.
If you have any questions do not hesitate to call Greg Kirkpatrick at the AADA office, 501-372-2596.
Greg Kirkpatrick
AADA President