Do Dealerships Pay Taxes When They Buy a Car for Resale?

State laws usually include tax exemptions for items purchased by businesses for resale to customers, but businesses may miss out if they don't understand the forms they need for these tax exemptions. To sell a vehicle wholesale from one dealer to another, each state requires businesses to have their version of a wholesale motor vehicle dealer's license in addition to a wholesaler's license or resale license. In Arizona, for example, the Transaction Privilege Tax represents the sales tax paid on retail vehicle sales -- not sales between dealers. The tax rate can differ by each city and county within the state.

Only five states in the U.S. do not have sales and use taxes in place -- Alaska, Delaware, Montana, New Hampshire and Oregon -- at the time of publication. State sales and use taxes help fund government services and programs within the state. In Arizona, for example, the Transaction Privilege Tax and Use Tax are separate items. The Transaction Privilege Tax, imposed on businesses by the state, typically gets passed to the customer. The Use Tax applies to items not meant for resale, but for use by businesses in Arizona. Businesses that conduct retail sales must have a Transaction Privilege Tax License. Arizona businesses must pay one or the other of these taxes, but not both, unless the sale is exempt.

Businesses must contact their individual state to find out which tax exemption forms they must submit to avoid paying taxes on items purchased for resale. The Arizona Department of Revenue provides an online link to the Transaction Privilege Tax Exemption Certificate Form 5000 or its Resale Certificate Form 5000 A, which wholesalers need to avoid paying taxes on vehicle sales between dealers. Under Arizona requirements, when a dealer buys a vehicle from another dealer who has one or more of these certificates on file with the state, the buyer must be able to prove the purchase was made for resale.

Arizona requires businesses to obtain a Sales, Resale, Vendor, Tax or Wholesale License, commonly known as a TPT license, when selling products or services within the State of Arizona. Small businesses also need to check with the city in which they do business, as they may also need the city's TPT license, a business license or both from the city in which they do business. Some cities and counties also add on additional rates to the state's TPT or Use Tax.

Dealers who make vehicle sales to other dealers for the purpose of resale are exempt from TPT and Use Taxes in Arizona and can deduct these amounts from their gross sales when filing quarterly tax reports. While the Arizona Department of Revenue usually collects the taxes for the state, cities and counties, some of Arizona's larger cities collect their own taxes. In these cities, car dealerships must report TPT to both the city and the state using the appropriate forms.