Tennessee Issues Guidance on Sales Tax Implications of Volkswagen Settlement

Recently, Volkswagen (“VW”) reached a settlement with federal and California regulators, whereby it agreed to make cash payments for certain VW and Audi diesel vehicles. Last week, in an effort to avoid any confusion, the Tennessee Department of Revenue (“Department”) became the second state to issue guidance on the sales tax implications of this settlement.¹ Under the settlement, owners have the option to sell their car back to VW or retain the car and receive a cash settlement and emissions modifications from VW. 

Owners who sell their vehicles back to VW will not be required to pay sales or use tax on the sale. However, they will not be entitled to a refund of the tax paid on their original purchase of the vehicle. Furthermore, if the owner chooses to purchase a new vehicle with the proceeds of the VW buyback, they will need to pay sales tax on the entire purchase price of the new vehicle.  Owners who choose to keep their vehicles and accept the cash settlement and emissions software modification will owe no Tennessee sales or use tax.

We can expect to see more guidance from other states as consumers seek to understand the sales tax implications of the settlement as it applies to where they live.

¹ Ryan Tax Development, Wisconsin Issues Guidance on Sales Tax Implications of Volkswagen Settlement, November 22, 2016.