CLARIFICATION OF SALES TAX CHARGES REGARDING TRADE-INS OR EXCHANGES
Our members often raise the question of the rules for sales tax on cores. So we are sharing the information which has been sent in prior OVAAA/MAPSA Bulletins on this subject. The law has not changed. This information is offered to you for clarification.
For the purpose of computing sales tax, the State of Ohio Department of Taxation and Attorney General consider the price allowed for core deposits in the same manner as a price allowed for used trade-in items. Sales tax is charged on the Gross Sales Price which, in these cases, is the actual exchange price plus the core deposit.
Section 5739101 (H) of the Ohio Code (Revised) defines price as the aggregate value in money of anything paid without any deduction on account of interest or discount allowed or paid after the sale is consummated.
The core deposit is essentially a trade-in allowance. Consequently the deposit is part of the tax base for the item sold.
If the customer turns in the old unit at the time of sale, sales tax is computed on the Exchange Price plus the value of the old core turned in.
If the old article taken is treated as a "Trade-in", tax is charged on the item purchased. Deduction is then allowed for the "Trade-in" item.
The following are examples of "Trade-in" sales and "Core Deposit Exchange" sales:
1. Trade-in Example:
Sales Tax 21.00
Total Cost $371.00
Less Old Core -75.00
Total Cost to Purchaser $296.00
2. Core Deposit Exchange Example:
Motor (Exchange Price)$275.00
Core Deposit 75.00
Total Sales Price$350.00
Sales Tax 21.00
Less Trade-in -75.00
Total Cost to Purchaser$296.00
If, in example 2, no core is turned in at time of sale, but one is later returned, then the sales tax on the $75.00 deposit ($4.50) cannot be refunded nor can a credit for the tax be given to the customer. This is treated in the same manner as Example 1 in which no sales tax is refunded or credit given for tax on the trade-in. The only credit that can be given is the deposit for the return of the old core.
These procedures apply only on sales to persons or firms that are required to pay Sales Tax on purchases. They do not apply to sales made for resale to those companies which have given you Resale Certificates. Resale Certificates should be on file for all your regular customers who make purchases from you for resale.
The main question seems to be whether the old unit is considered and billed as a "Trade-in" or as an Exchange item. It adds up to ...whenever a taxable sale is made on rebuilt merchandise, tax must be charged on the core charge if one is made, whether the core is turned in at the time of sale or at a later date.
If you have further questions, please feel free to submit them to the MAPSA office at 800/486-6292.