In 2017 I bought a used car out-of-state (rather than sort through the local options to find one without hidden water damage).

  • Because I was not a Kansas resident, I had Kansas sales tax waived at the time of purchase
  • In order to title and register the vehicle where I reside in Texas, I paid a "sales and use tax" along with the other title and registration fees
  • Texas has no income tax, so it is always advantageous to use state and local sales tax instead when itemizing

Now, as best I understand, Texas doesn't have jurisdiction over the sale in Kansas, so they can't actually levy sales tax on it. They do have jurisdiction over registration, so they choose to levy a use tax which is equal to, but is not, a sales tax. But I don't know whether the IRS rules treat the use tax equivalently to sales tax or to vehicle property tax.

Can I get a deduction for this tax payment, in addition to the table-based sales tax estimate?

To do so, would I list the tax as "Vehicle and Personal Property Tax" where value-based registration taxes go (1040 Schedule A line 7) or "State and Local Sales Tax" (1040 Schedule A line 5)?

Looking at the form (the instructions from H&R TaxCut software I'm using seem not to cover this, apart from saying that annual taxes, which this is not, do appear in line 7) it seems like if this tax is a sales tax, it gets listed on line 5 mini-worksheet for sales taxes (a) which lets me claim it in addition to the table-calculated sales tax (which would swallow it). So it seems that yes, I will get a deduction. But I still need to list it in the right place in case the IRS is comparing to other information sources.

So, line 5b (sub-worksheet line a) or line 7 for this exactly-like-but-not-really-a-sales-tax?

  • Not line 7, it's not assessed annually so doesn't fit personal property tax. It looks and smells like a sales tax, so 5a feels good, if not, line 8. – Hart CO Mar 19 '18 at 16:37
  • @HartCO I think it is funny that three of us now have posted an attempted answer and then deleted it. :) May I ask why you have now chosen to answer in a comment? – Ben Miller Mar 19 '18 at 21:37
  • @BenMiller Just some uncertainty and ran out of time to research further, not confident enough for it to be an answer. – Hart CO Mar 19 '18 at 21:40
  • @HartCO If you aren't certain about your answer, it is even more important to not answer in the comments. If you post your uncertain answer as an answer, it allows other users to vote it down or leave comments, if necessary. See this meta question for more details. – Ben Miller Mar 20 '18 at 3:08
  • @BenMiller My comment isn't an answer, maybe partial answer. I'm not uncertain about what I stated in my comment, but I like my answers to be more fleshed out with good sources when helpful. – Hart CO Mar 20 '18 at 15:07

26 U.S.C. 164(b)(5)(E), a sub(subsub) section of the law that specifies taxes that are deductible:

(E) Compensating use taxes A compensating use tax with respect to an item shall be treated as a general sales tax. For purposes of the preceding sentence, the term "compensating use tax" means, with respect to any item, a tax which-

(i) is imposed on the use, storage, or consumption of such item, and

(ii) is complementary to a general sales tax, but only if a deduction is allowable under this paragraph with respect to items sold at retail in the taxing jurisdiction which are similar to such item.

Subsection (i)(1) of 26 CFR 1.164-3 even gives your specific example:

(1) In general, a use tax on an item is complementary to a general sales tax on similar items if the use tax is imposed on an item which was not subject to such general sales tax but which would have been subject to such general sales tax if the sale of the item had taken place within the jurisdiction imposing the use tax. For example, a tax imposed by State A on the use of a motor vehicle purchased in State B is complementary to the general sales tax of State A on similar items, if the latter tax applies to motor vehicles sold in State A.

In terms of the practical effect of the use tax being "complementary", the IRS' Instructions for Schedule A clarifies:

However, if you paid sales tax on a motor vehicle at a rate higher than the general sales tax, you can deduct only the amount of the tax that you would have paid at the general sales tax rate on that vehicle.

Given all this, it looks like this would be considered a 5b deduction. Also note that the instructions for Schedule A state that you should keep your actual receipts showing general sales taxes paid to take the 5b deduction--I take that to mean you should keep your receipts of paid use taxes as well.

  • Thanks, this is perfect! It's a almost-but-not-really-a-sales-tax-that-is-treated-like-a-sales-tax-by-the-IRS. – Ben Voigt Mar 22 '18 at 1:35

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