Revenue Notice #05-05: Sales and Use Tax - Definition of Reasonable Rental Value of Motor Vehicles

Background

Minnesota Statutes provide that when a motor vehicle dealer uses, other than for demonstration purposes, a vehicle purchased for resale, the dealer may pay either the use tax under chapter 297A, based on the reasonable rental value of the vehicle, or the motor vehicle sales tax under chapter 297B on the full purchase price at the time converted to the dealer’s use. This revenue notice is being issued to set forth the commissioner’s position on the meaning of “reasonable rental value” in the statute to provide certainty and fairness in the amount of taxes paid in these circumstances.

Statutory Provision

Minnesota Statutes, section 297B.035, subdivision 5, provides: “If a motor vehicle dealer uses a vehicle, purchased for resale in the ordinary course of business, other than for demonstration purposes, the dealer may elect to pay the motor vehicle sales tax under this chapter or the use tax under chapter 297A based on the reasonable rental value of the vehicle. If the motor vehicle dealer fails to report the use tax under chapter 297A, it is presumed that the dealer elected to pay the motor vehicle sales tax under this chapter.”

Department Position

It is the commissioner’s position that the reasonable rental value for purposes of this statute is determined by calculating the daily rental value times the number of days or portions of days on which use, for other than demonstration purposes, occurred. The commissioner will accept a daily lease value calculated using the Annual Lease Value Table found at 26

C.F.R. § 1.61-21(d)(2)(iii), as amended through June 1, 1994, divided by 365 to determine at the daily lease value. The Annual Lease Value Table is reprinted below. Tax payments based on this value or any greater value will be accepted as reasonable rental value. The fair market value used in calculating the daily rental values is the base value as determined by the registrar of motor vehicles pursuant to Minnesota Statutes, section 168.013, subdivision 1a, plus the retail price of accessories and items of optional equipment if not included in the registrar’s calculation.