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Tax Facts Vol. 17, No. 4

Tax Facts Index

TAX FACTS NEWSLETTER

East Baton Rouge Parish

Department of Finance

Vol. 17,  No. 4

October 2006

Sales Tax Clarification Regarding Collision
Damage Waivers

Recently, the Louisiana Department of Revenue issued Revenue Ruling No. 06-007 regarding the sales tax treatment of Collision Damage Waivers in connection with an automobile rental transaction. The specific issue surrounds the question of whether optional Collision Damage Waiver charges in connection with an automobile rental transaction are subject to sales taxes.

For example, a customer rents a vehicle from a vehicle rental agency and accepts responsibility for any damage to the vehicle while under rent, and then returns the vehicle in a damaged condition. Ultimately, the customer is liable for any damages to the vehicle while in his possession. To avoid having to pay for such repairs to a vehicle personally, a customer is given the option to purchase a Collision Damage Waiver as specified in the rental contract. When the Collision Damage Waiver terms are purchased, the vehicle rental agency forfeits their rights to force the rental customer to pay for the physical damages. Collision Damage Waiver terms are offered as an option, and a rental customer may rent a vehicle without accepting these separately stated terms and charges.

The Uniform Local Sales Tax Code, in sections L.R.S. 47:337.6 (B) and L.R.S. 47:301(7)(a), authorizes local jurisdictions to levy a tax upon the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business, or part of the same is incidental or germane to the business. It also defines “lease or rental” as the leasing or renting of tangible personal property and the possession or use thereof by the lessee or rentee, for a consideration, without transfer of the title of such property.

L.R.S. 22:2091.3(A) defines “ ‘collision damage waiver’ as any contract or contractual provision, whether separate from or a part of a motor vehicle rental agreement, whereby the lessor agrees for a charge, to waive any and all claims against the lessee for any damages to the rental motor vehicle during the term of the rental agreement.” According to L.R.S. 22:2091.2, “the collision damage waiver portion of the rental agreement....shall not be considered insurance.” Additionally, L.R.S. 22:2091.10 states, “The rates charged for the collision damage waiver by a licensee under this Part shall be exempt from insurance taxes and insurance taxation provided that sales taxes in effect in the locale of rental contract issuance are applied, collected and remitted to the proper tax authority.”

As a result, it is the position of the Finance Department Revenue Division that Collision Damage Waiver charges are to be included as part of the gross proceeds derived from the lease or rental of a motor vehicle, because the Collision Damage Waiver necessarily arises from the lease or rental of the vehicle, is obtained through a contract with the lessor of the automobile, and the language of L.R.S. 22:2091.10 expresses a clear legislative intent that Collision Damage Waiver charges are subject to taxation. This decision is consistent with that of the Department of Revenue.

Any questions regarding the sales taxability of Collision Damage Waivers may be directed to the Revenue Division at 225-389-3084.

2006 Legislative Update

The Louisiana Legislature enacted several measures affecting local sales and use taxes during its 2006 Regular Session. Those measures include:

Act 291 (House Bill 958) specifies procedures for the resolution of boundary disputes between taxing bodies regarding the collection of local sales taxes on vehicles. The State will deposit the contested tax into a non-interest bearing account. After the dispute is resolved either mutually or by judicial means, the funds will be distributed to the appropriate taxing body. Any funds remaining will be returned to the taxpayer. Effective August 15, 2006.

Act 411 (House Bill 1003) classifies prescription drugs purchased through or pursuant to a Medicare Part D plan as exempt from the sales and use taxes imposed by any local governmental subdivision, school board, or other political subdivision whose boundaries are not coterminous with the state. Effective July 1, 2006.

Act 608 (Senate Bill 546) eliminates all local sales and use tax on Medicare Part B and D prescription drugs imposed by any local governmental subdivision, school board, or other political subdivision whose boundaries are not coterminous with the state. Effective July 1, 2006.

Act 765 (House Bill 594) amends Civil Code Article 466 to read as follows:

Art. 466. Component parts of a building or other construction

Things permanently attached to a building or other construction are its component parts.

Things such as plumbing, heating, cooling, electrical, or other installations are component parts of a building or other construction as a matter of law.

Other things are considered to be permanently attached to a building or other construction if they cannot be removed without substantial damage to themselves or to the building or other construction or if, according to prevailing notions in society, they are considered to be its component parts.

Effective June 29, 2005.

Sales Tax Due Dates

Following are the sales tax due dates for the fourth quarter of 2006:

For the Month of Tax Due Date Delinquent
Date
October November 1 November 21
November December 1 December 21
December January 1 January 22, 2007

Need help?

Taxpayers may contact the Revenue Division by phone or fax to receive assistance between the hours of 8 a.m. and 5 p.m., Monday-Friday.

Taxpayer Assistance: (225) 389-3084
Fax Number: (225) 389-5369

 

Taxpayer Topics

The Tax Facts Newsletter is issued quarterly by the Finance Department/Revenue Division.  Our mission is to provide taxpayers with information concerning developments and policies regarding the collection of local sales and use taxes within East Baton Rouge Parish.  The Revenue Division invites any suggestions, questions or comments that you would like addressed in future issues of Tax Facts.  Please send these items to:

City of Baton Rouge -
 Department of Finance
P. O. Box 2590
Baton Rouge, LA  70821-2590
Attention:  Steve Thomas
or send us an e-mail
 

Remember to mail your return early!  Returns bearing a U.S. postmark on or after the above delinquent dates will be assessed penalty, interest, and loss of vendor's compensation.

Department of Finance - Revenue Division
222 St. Louis Street, Room 404
Baton Rouge, LA  70802

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