News

Out-of-State LLC Registration Scheme

The Commission is well aware of a scheme to evade sales tax on vehicles purchased for use in Tennessee involving out-of-state limited liability companies.  Advertisements on the internet solicit individuals to set up an out-of-state limited liability company with the promise of not paying sales taxes on vehicle purchases.  The states normally advertised in these schemes include Montana, Alaska, and New Mexico among others.

Tennessee Taxes on Vehicles

Tennessee law imposes a 7% tax on the retail sale of automobiles and other tangible personal property and an additional single article tax at the rate of 2.75% on the sales price amount in excess of $1,600, but less than or equal to $3,200, for individual items. See Tenn. Code Ann. § 67-6-202.

For vehicle purchases made within Tennessee, auto dealers are required to collect sales tax from their customers.  That tax will be charged unless a three-day removal affidavit is completed by the purchaser and the seller.  The affidavit is signed under penalty of perjury and states that the purchaser will remove the vehicle from Tennessee within three days for use in another state. Additionally, Tennessee imposes a use tax on property used, consumed, distributed, or stored for use or consumption in Tennessee at the same rate as sales tax.  See Tenn. Code Ann. § 67-6-203.

Tax Due on Vehicles Bought for Use in Tennessee

These out-of-state limited liability companies will owe tax on vehicles purchased inside or outside of Tennessee if that vehicle is bought for use in this state. The fact that the LLC was formed or is located outside this state does not create an exemption from tax.

The Department of Revenue has conducted investigations that have led to successful prosecutions across Tennessee and has engaged in numerous compliance audits to recover taxes, penalties, and interest.

Please be wary of claims that suggest that you can buy a vehicle tax-free through this process if the vehicle is purchased for use in Tennessee.

Report any violations to the Department of Revenue's Special Investigations Unit by calling (800) FRAUDTX.

Notice On Temporary Tags

The Commission may revoke a license for an act or practice involving the sale/ purchase of a motor vehicle that is either false, fraudulent, or deceptive. T.C.A. § 55-17-114(b)(1)(N).

The Commission may take such action against dealerships who have been found in violation of current laws and requirements related to the issuance of temporary tags. Current law provides for the issuance of one (1) temporary plate covering a sixty-day (60 day) period. [T.C.A. § 55-4-226 (c)(4)]

The Department of Revenue has allowed dealers a one-time extension for an additional sixty-day (60) day tag though we expect them to revisit this additional allowance in the near future. Dealers issuing more than the temporary tag limit allowed by Revenue (currently two (2) temporary tags), may be found in violation of T.C.A. § 55-17-114(b)(1)(N) and, as such, risk revocation of their license.

Further, any unauthorized use of the temporary tag (EZ Tag), e.g., placing an unauthorized temporary tag on a vehicle for which it is not registered; selling temporary tags for monetary gain, etc. may also result in substantial civil penalties (up to $5,000 per day, per occurrence), suspension, or license revocation.