2019 Highway Use Tax Law Changes

The 2019 General Assembly added new defined terms and amended multiple definitions for existing defined terms. The changes and their effective dates are as follows:

Long-Term Lease or Rental – (3). The definition of the term is amended and provides “[a] lease or rental made under a written agreement to lease or rent one or more vehicles to the same person for a period of at least 365 continuous days and that is not a vehicle subscription.” [Emphasis added.]

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

Limited Possession Commitment – (3c). The definition of the term is added and defined as a “[l]ong-term lease or rental, short-term lease or rental, and vehicle subscriptions.”

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

Retailer – (6). The definition of the term is amended and provides “[a] retailer as defined in G.S. 105-164.3 who is engaged in the business of selling, leasing, renting, or offering vehicle subscriptions for motor vehicles.” [Emphasis added.]

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

Short-Term Lease or Rental – (7). The definition of the term is amended and provides “[a] lease or rental of a motor vehicle or motor vehicles, including a vehicle sharing service that is not a long-term lease or rental or a vehicle subscription.” [Emphasis added.]

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

Vehicle Sharing Service – (8). The definition of the term is added and defined as “[a] service for which a person pays a membership fee for the right to use a motor vehicle or motor vehicles upon payment of an additional time-based or mileage-based fee.”

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

Vehicle Subscription – (9). The definition of the term is added and defined as “[a] written agreement that grants a person the right to use and exchange motor vehicles owned, directly or indirectly, by the person offering the agreement upon payment of a subscription fee, but it does not include a vehicle sharing service. The subscription fee must provide a person exclusive use of an agreed-upon number of motor vehicles at any given time during the full term of the subscription.”

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

This subsection was added to clarify that “[t]his section does not apply to Chapter 20 of the General Statutes, including the licensing requirements, restrictions, limitations, and prohibitions on unfair methods of competition contained in Article 12 of that Chapter.”

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 1., S.L. 2019-69.)

This section is amended to include the defined term “limited possession commitment” and provides the following:

(a) Election. – A retailer may elect not to pay the tax imposed by . . . Article [5A of Chapter 105 of the North Carolina General Statutes] at the rate set in G.S. 105- 187.3 when applying for a certificate of title for a motor vehicle purchased by the retailer for a limited possession commitment. A retailer who makes this election shall pay a tax on the gross receipts of the limited possession commitment of the vehicle. The portion of limited possession commitment billing or payment that represents any amount applicable to the sales price of a service contract as defined in G.S. 105-164.3 should not be included in the gross receipts subject to the tax imposed by . . . Article [5A of Chapter 105 of the North Carolina General Statutes]. The charge must be separately stated on documentation given to the purchaser at the time the limited possession commitment goes into effect, or on the monthly billing statement or other documentation given to the purchaser. When a limited possession commitment is sold to another retailer, the seller of the limited possession commitment should provide to the purchaser of the limited possession commitment the documentation showing that the service contract and applicable sales taxes were separately stated at the time the limited possession commitment went into effect and the new retailer must retain the information to support an allocation for tax computed on the gross receipts subject to highway use tax. Like the tax imposed by G.S. 105-187.3, this alternate tax is a tax on the privilege of using the highways of this State. The tax is imposed on a retailer, but is to be added to the limited possession commitment of a motor vehicle and thereby be paid by the person who enters into a limited possession commitment with a retailer.” [Emphasis added.]

(b) Rate. – The applicable tax rates on the gross receipts from a limited possession commitment are as listed in this subsection. Gross receipts does not include the amount of any allowance given for a motor vehicle taken in trade as a partial payment on the limited possession commitment. The maximum tax in G.S. 105- 187.3(a1) on certain motor vehicles applies to a continuous limited possession commitment of such a motor vehicle to the same person. The applicable tax rates are as follows:

(c) Method. – A retailer who elects to pay tax on the gross receipts of the limited possession commitment of a motor vehicle shall make this election when applying for a certificate of title for the vehicle. To make the election, the retailer shall complete a form provided by the Division giving information needed to collect the alternate tax based on gross receipts. Once made, an election is irrevocable.” [Emphasis added.]

(d) Administration. – The Division shall notify the Secretary of Revenue of a retailer who makes the election under this section. A retailer who makes this election shall report and remit to the Secretary the tax on the gross receipts of the limited possession commitment of the motor vehicle. The Secretary shall administer the tax imposed by this section on gross receipts in the same manner as the tax levied under G.S. 105-164.4(a)(2). The administrative provisions and powers of the Secretary that apply to the tax levied under G.S. 105-164.4(a)(2) apply to the tax imposed by this section. In addition, the Division may request the Secretary to audit a retailer who elects to pay tax on gross receipts under this section. When the Secretary conducts an audit at the request of the Division, the Division shall reimburse the Secretary for the cost of the audit, as determined by the Secretary. In conducting an audit of a retailer under this section, the Secretary may audit any sales of motor vehicles made by the retailer." [Emphasis added.]

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 2., S.L. 2019-69.)

This subsection is amended and provides “[o]f the taxes collected under [Article 5A of Chapter 105 of the North Carolina General Statutes] at the rate of five percent (5%) and eight percent (8%), the sum of ten million dollars ($10,000,000) shall be credited annually to the Highway Fund, and the remainder shall be credited to the General Fund. Taxes collected under . . . Article [5A of Chapter 105 of the North Carolina General Statutes] at the rate of three percent (3%) shall be credited to the North Carolina Highway Trust Fund.” [Emphasis added.]

(Effective October 1, 2019, and applies to vehicle subscription agreements entered into on or after that date; HB 537, s. 3., S.L. 2019-69.)