Motor vehicle dealers – are you ready for your 2025 sales tax audit from the Florida Department of Revenue? Auto dealers are some of the most heavily targeted businesses in the state for sales and use tax audits. The Department of Revenue will typically evaluate not only your own records, but also records from the DMV to determine any sales tax assessment. 

One issue faced by automobile dealers under sales tax audit is the fact that vehicles are sold out-of-state, sold in Florida to be used out-of-state, and then, of course, are sold here to be used here. Did you know Florida has very tricky sales tax rules for car dealers?

Florida’s Motor Vehicle Sales and Use Tax Rules for Nonresidents

Florida law offers unique provisions for nonresidents purchasing motor vehicles in the state. If you’re considering buying a car in Florida but plan to license it in another state, understanding the nuances of Florida’s partial exemption for sales and use tax is essential. This guide unpacks the rules, exemptions, and critical considerations to help nonresident buyers and sellers comply with state tax laws.

Partial Exemption for Nonresidents

Florida provides a partial exemption of sales tax on motor vehicles purchased by nonresidents, under specific conditions:

1. Tax Rate Matching:
   The Florida sales tax collected equals the amount the purchaser’s home state would impose if the vehicle were bought there.

   • If the home state imposes a tax rate higher than Florida’s 6%, the maximum Florida tax remains capped at 6%.

2. Tax Collection and Reporting:

   • Even though the amount corresponds to the purchaser’s state rate, the collected tax is Florida tax and must be remitted to the Florida Department of Revenue.

Affidavit Requirement

Nonresident buyers must file Form DR-123 (Affidavit for Partial Exemption of Motor Vehicle Sold to a Resident of Another State) at the time of purchase. This affidavit serves as a declaration of intent to:

• License the vehicle in their home state within 45 days of purchase.
• Ensure the partial exemption applies, provided they meet this timeline.

For purchases from:

• Dealers: The affidavit is filed with the seller.
• Individuals: The affidavit must be submitted to the county tax collector or private tag agent when obtaining a temporary tag.

Key Restrictions

The partial exemption does not apply in the following cases:

1. Corporate or Partnership Purchasers:
   • If a corporate officer or a stockholder owning at least 10% of the corporation is a Florida resident.
   • If a partnership has a partner with at least 10% ownership who resides in Florida.
2. Exceptions for Corporations/Partnerships:
   • The exemption may apply if the vehicle is removed from Florida within 45 days of purchase and remains outside Florida for at least 180 days.

Interstate Tax Credit Challenges

While most states honor credits for sales taxes paid to Florida, three states do not extend this courtesy:

• Arkansas
• Mississippi
• West Virginia

Residents of these states face dual taxation, paying Florida’s sales tax (at their home state’s rate) and their home state’s tax upon vehicle registration.

Vehicles Purchased Outside Florida and Brought Into the State

Florida imposes a 6% use tax on motor vehicles purchased in another state or U.S. territory and subsequently titled or registered in Florida. However, Florida offers a tax credit for equivalent taxes paid elsewhere, provided:

• The tax was lawfully imposed.
• Documentation of payment is supplied.

If the tax paid out-of-state equals or exceeds Florida’s rate, no additional tax is due. If it’s less, the buyer must pay the difference.

Exemptions Based on Vehicle Use

Vehicles used outside Florida for six months or more before being brought into the state are presumed to be purchased for out-of-state use. As long as the owner provides supporting documentation, no Florida use tax applies.

Rate Chart Overview

Florida’s Department of Revenue maintains an up-to-date chart detailing:

• Tax rates by state.
• Whether trade-in credits are allowed.
• Exemptions for occasional or isolated sales.

This chart also identifies states that allow credit for Florida sales taxes and can be a valuable resource for nonresident purchasers.

Practical Tips for Nonresident Buyers

1. Understand Your Home State’s Tax Rules:

   • Confirm whether your home state offers a credit for taxes paid in Florida.
   • If your state doesn’t, factor this into your purchase decision.

2. File Required Documentation Promptly:

   • Complete and submit Form DR-123 to secure the partial exemption.

3. Track Timelines:

   • Ensure the vehicle is licensed in your home state within 45 days.

4. Consult Professionals:

   • If you’re uncertain about tax implications, consult a tax lawyer or financial advisor.

Florida’s Use Tax for Vehicles Brought In

If you’re moving to Florida and plan to bring a vehicle purchased elsewhere, verify how long it’s been used out-of-state. Proper documentation can save you from unexpected tax liabilities.

Navigating Florida’s vehicle tax laws can be complex, but with the right information, buyers and sellers can approach transactions confidently. Whether you’re a dealer, individual seller, or buyer, compliance with these rules ensures a smooth process while avoiding unnecessary costs or penalties.

Sales Tax Rates on Motor Vehicles by State can be found for 2024 by reading the Department’s Taxpayer Information Publication 23A01-26R.