3 Things You Didn’t Know Affected Tire Tax

What is a tire tax? Tire tax, also known as scrap tire fee, solid waste fee, and tire disposal tax, is a fee imposed on the sale of a new tire or replacement of an old one. Proper disposal requires significant state or local resources, justifying the collection of this fee. Retailers collect the tire tax at the time of sale and remit it to state-level programs that fund tire disposal. Essentially, the tire tax is a disposal fee applied to new tire sales. Since it is regulated at the state and local levels, not every state has a tire tax, and those that do may apply it differently.

The amount or application of a tire tax is determined by three main conditions:

1. Type of Tire
2. Tire Delivery Method
3. Customer exemptions

Type of Tire

There are various types of tires, including retreaded (or recapped) and studded tires. Retreaded tires have been remanufactured to replace worn tread, while studded tires feature small metal spikes for better traction on icy roads. The tax rate varies based on the tire type, and generally, the size of the tire affects the fee due to the greater disposal burden. In some states, the rim diameter also influences the tax amount: larger tires or rims result in higher fees.

Tire Delivery Method

In some states, tire tax rules depend on whether the tire is intended for highway use and delivered as a sole product. In these cases, the main point of the transaction was a retail sale of a tire. On the other hand, if a tire is mounted on a new vehicle and included in the sale, it is considered an "indirect" sale, which affects its taxability. For example, many states treat the sale of a new motor vehicle as also including the sale of a new tire, even though the tire is part of the vehicle. Therefore, analyzing state statutes to determine which tire delivery methods are taxable is essential for maintaining tire tax compliance.

Customer Exemptions

The tire tax does not apply to every individual or organization purchasing a new tire. Many customer exemptions vary by state. An exempt customer, who is not required to pay the tax, must submit an exemption certificate to qualify for the exemption. The most common exempt customer is one who is making the purchase for resale. Additionally, many states exempt sales to state or federal governments, as well as sales to nonprofit organizations. Certain states also provide exemptions for sales to American Indians on reservations. However, some states, like Maryland, do not accept any exemptions for retail customers, even if they are otherwise exempt.

Some states, like Maryland, place the responsibility for the tire tax fee on the retailer instead of the customer. This means the fee is imposed on tire sellers rather than purchasers, and there are no exemptions for retail customers.

Tips for the Taxpayer

It's important that dealers and retailers understand the tax implications of their products as they are sold into each state as this determines their responsibility to facilitate collection or payment of tire taxes and fees. Taxpayers should be aware of the type of tire, the tire delivery method, and the customer exemptions that are applicable on a state and local basis. In order to collect and remit tire taxes, a separate tax registration is typically required by states, in addition to the general sales and use tax registration.

Businesses in the automotive industry are encouraged to do a thorough examination of the vehicle and tire sales they are making across state lines. This review should be done upon having economic nexus in a state and will ensure full tire tax compliance is maintained.

How Can We Help?

Allyn’s tax team is staffed with seasoned tax professionals and consultants experienced in all aspects of Federal, multi-state and local tax compliance and consulting for large U.S. and global corporations. We use that experience to your advantage.

Allyn files state and local tax returns in every U.S. taxing jurisdiction, managing the entire process from data acquisition and analysis to return filing and tax payment. Our tax professionals are well-versed in technical sales tax regulations, procedures, and practices. We ensure you remain fully compliant with state and local tax laws while minimizing your tax liability.

Our clients rely on us to handle any unexpected tax questions that arise, of which there are no shortages. With our significant expertise, you can focus on your core business while we ensure you are paying only your fair share in taxes and not a penny more.

Contact us to receive a customized, cost-effective solution tailored to your company's needs. For further information on Allyn Tax services, please reach out to us at tax@allynintl.com.

For More Information

If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News & Publications at www.allynintl.com.

Contributors: Lauren Gordon & Megan Bryarly

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About Allyn International

Allyn International provides high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.