Demonstrator use of vehicles

What is a demonstrator vehicle?

A demonstrator vehicle is a vehicle provided by dealers to their sales staff, without charge, for any personal or business reason other than (or in addition to) the mere display or test driving of prospective purchasers.

B&O tax not due

The B&O tax does not apply upon transfer of vehicles to employees or other representatives for their personal use, including demonstration, when no sale occurs.

B&O tax due

Automobile dealers are taxable under the Retailing classification on the sale or lease of automobiles to their employees or other representatives for personal use, including demonstration.

Retail sales tax due

The retail sales tax applies on the sale or lease of automobiles, parts, and accessories by dealers to their employees or other representatives for personal use by such persons. The retail sales tax does not apply to the display of automobiles where no sale takes place.

Use tax due

When an automobile dealer purchases a passenger car or pickup truck without paying retail sales tax and uses the car or truck for personal use or demonstration purposes, the use tax applies even if such personal car or demonstrator may later be sold by the dealer.

Use tax not due

The use tax does not apply to the display or short term test driving of new or used automobiles by dealers, their employees or other representatives. Neither does use tax apply upon the personal use or demonstration of automobiles which have been sold or leased to dealer's employees or other representatives on which retail sales tax has been paid. If the dealer reports under the "actual method," use tax will not apply on demonstrator vehicles if no such vehicles are actually used.

How is use tax computed?

Automobile dealers may elect to compute the use tax on the use of demonstrators (passenger vehicles and pick-up trucks up to 3/4 ton) by sales staff on either a "one per 100 vehicles sold" basis or on an "actual number of demonstrators used" basis. Use of the one per 100 vehicles sold method will satisfy the use tax liability for personal or business use of demonstrators by sales staff employed by a new car dealer. However, the one per 100 vehicles sold method will not satisfy the use tax liability for the personal or business use of vehicles by persons other than sales staff employed by the dealership.

How do you figure the one to 100 car basis?

The use of demonstrators is subject to the use tax on the basis of one demonstrator for each 100 new cars and pickup trucks, or fractional part of such number, of all makes or models sold at retail, including lease transactions during a calendar year. The first demonstrator vehicle reported during any calendar year is subject to use tax measured by the full average retail selling price. The average retail selling price is determined by including dealer preparation, transportation, and factory installed accessories of all makes and models of new passenger cars and pickups sold during the preceding calendar year divided by the number of such units sold. The use tax on each subsequent demonstrator is measured by 25% of the average selling price.


A dealer with $3,000,000 in new vehicle gross sales for the previous year, who sold 250 units that year derives an average selling price of $12,000. The very first demonstrator use in the current year will be valued at $12,000. All subsequent demonstrators reported in the current year, based upon the formula of one demonstrator for each 100 units sold, will be $3,000. The use tax is paid as of the date of the first sale in any calendar year and subsequently upon the sale of the 101st car or truck. If a dealer sold 340 units in the current year, use tax would be due on four units (the first at 100 percent of the average retail selling price of all new vehicles sold in the preceding year and the remaining three at 25% of the previous year's selling price of new vehicles).

Use tax on actual use basis

Dealers who report use tax on demonstrators on an actual basis are required to report use tax on each vehicle assigned to demonstrator use. The value is computed in the same manner as under the one per 100 basis. The first vehicle in the current year, which is used for demonstrator use, is taxable on the full average selling price of all new vehicles sold in the preceding year. Additional vehicles during the year which are put to use as demonstrators are taxable at 25% of the average selling price of new vehicles sold in the preceding year.

Can the actual reporting basis be applied to use of vehicles other than demonstration?

No, this method of computation applies only to use by sales staff of demonstrator vehicles operated under dealer plates issued to the dealership. Vehicles, which are required to be licensed other than to the dealership, are generally used substantially for purposes other than demonstration and are subject to use tax. The use tax is measured by the actual value (purchase price) of these vehicles.

Changing reporting methods

When an automobile dealer has elected to report the use tax under the "one per 100 basis," or upon the actual number of demonstrators used, it must petition the Department of Revenue, in writing, to change the reporting method.

See Personal Use of Used Vehicles for tax liability of used car dealers.


Washington Administrative Code (WAC) 458-20-132