Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 203 - Elements Included in and Excluded From a Taxable Sale and Sales Price › Rule 701-203.5 - Trade-ins

Current through Register Vol. 47, No. 3, July 24, 2024
(1) Trade-ins. When
				tangible personal property is traded toward the purchase price of other
				tangible personal property, the sales price shall be only that portion of the
				purchase price which is payable in money to the retailer if the following
				conditions are met:
a. The tangible personal
				property is traded to a retailer, and the property traded is the type normally
				sold in the regular course of the retailer's business; and
b. The tangible personal property traded to a
				retailer is intended by the retailer to be ultimately sold at retail;
				or
c. The tangible personal
				property traded to a retailer is intended to be used by the retailer or another
				in the remanufacturing of a like item.
EXAMPLE 1. A owns a car valued at $5,000. A trades his used
				  car to XY car dealer for a used car valued at $12,000. XY car dealer normally
				  sells used cars. Use tax would be due on the $7,000 in money which A paid to XY
				  car dealer, as both conditions
"a"
and
"b"
have been met.
EXAMPLE 2. John Doe has a pickup truck with a value of
				  $2,000. John wants a boat, so he offers to trade his $2,000 pickup to ABC boat
				  dealer for the purchase of a boat valued at $5,000. ABC boat dealer is a new
				  and used boat dealer. ABC boat dealer agrees to accept the $2,000 pickup and
				  $3,000 cash in trade for the boat. In this example, the tax would be computed
				  on $5,000. The trade-in provision would not apply because condition
"a"
has not been met. The property traded is not the type of
				  property normally sold by ABC boat dealer in the regular course of the boat
				  dealer's business.
EXAMPLE 3. ABC Corporation trades 500 bushels of corn and
				  $500 cash to the local cooperative elevator for the purchase of various hand
				  tools. In its regular course of business, the local cooperative elevator sells
				  grain for processing into bread. The trade-in provision in this example would
				  not apply because condition
"b"
has not been met. When
				  ultimately sold by the cooperative elevator, the grain traded toward the
				  purchase price of the hand tools is sold for processing and not at
				  retail.
EXAMPLE 4. Hometown Appliance store is in the business of
				  selling stoves, refrigerators, and other various appliances in Iowa. Hometown
				  Appliance has a refrigerator valued at $650. Customer A wishes to trade a used
				  refrigerator toward the purchase price of the new refrigerator. Hometown
				  Appliance agrees to accept A's used refrigerator at a value of $150 toward the
				  purchase price of the new refrigerator. A pays Hometown Appliance $500 in cash.
				  The trade-in provision applies as both conditions
"a"
and
"b"
have been met, and tax would be due on the $500.
Several months later, Hometown Appliance sells the used
				  refrigerator it received from customer A to the local school district, which is
				  exempt from sales tax on its purchase. The trade-in provision on the original
				  transaction is still applicable because both conditions
"a"
and
"b"
were met. The sale is "at retail," even if the sales
				  price is exempt from tax.
EXAMPLE 5. ABC Auto Supply is in the business of selling
				  various types of automobile and farm implement supplies. The normal selling
				  price for a car generator is $80. ABC Auto Supply allows a $20 trade-in credit
				  to any customer who wishes to trade in an unworkable generator. At the time ABC
				  Auto Supply accepts the unusable generator, it knows that the generator will
				  not be sold at retail; however, ABC Auto Supply also knows that the generator
				  will be sold to XYZ Company, which is in the business of rebuilding generators
				  by using existing parts plus new parts. In this example, the trade-in provision
				  would apply since conditions
"a"
and
"c"
have
				  been met.