Tennessee ~ Sales and Use Tax: Tax Consequences for Owners of Volkswagen Vehicles Discussed

CCH Tax Day Report

The Tennessee Department of Revenue discusses the sales and use tax consequences for owners of Volkswagen vehicles affected by the federal settlement. Under the settlement with federal regulators, Volkswagen has agreed to buy back all affected vehicles, allow a trade-in for another vehicle, or pay cash settlements and provide new emission software to those who choose to keep their vehicles.

Vehicle owners who have a vehicle covered by the settlement may face sales and use tax consequences depending on the option chosen.

– Owners who wish to sell the vehicle back to Volkswagen will not be required to pay or collect sales tax on the sale. Additionally, such owners will not be entitled to a refund of the sales tax paid on the original purchase of the vehicle. Owners who use the money received from the buyback to purchase a new vehicle will need to pay sales tax on the entire sales price of the new vehicle. The sale to Volkswagen and the purchase of a new vehicle are two separate transactions. Under these circumstances, no trade-in occurs, so no trade-in deduction is allowed.

– Owners who choose to trade-in their vehicle to a dealer for a new vehicle will owe sales tax on the difference between the sales price of the new vehicle and the trade-in allowance given by the dealer for their current vehicle.

– There are no sales and use tax consequences for owners who choose to keep their vehicle and receive the cash settlement and the new emission software modification.

In October 2016, a settlement was approved between the United States and Volkswagen that partially resolves allegations that Volkswagen violated the Clean Air Act by the sale of 500,000 model year 2009 to 2015 motor vehicles containing 2.0 liter diesel engines equipped with defeat devices (i.e., software that evades Environmental Protection Agency emissions standards for nitrogen oxides).

Tax Questions, Tennessee Department of Revenue, December 2, 2016

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