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.
a. 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 that is payable in money to
				the retailer if the conditions in paragraph 203.5(1)
"b"
are
				met.
b. The tangible personal
				property is traded to a retailer, the property traded is the type normally sold
				in the regular course of the retailer's business and either subparagraph
				203.5(1)
"b"
(1) or 203.5(1)
"b"
(2) is true.
(1) The tangible personal property traded to
				a retailer is intended by the retailer to be ultimately sold at retail;
				or
(2) 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: Customer A owns a car valued at $5,000. Customer A
				  trades a 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
				  that Customer A paid to XY Car Dealer, as both conditions in paragraph
				  203.5(1)
"b"
and subparagraph 203.5(1)
"b"
(1)
				  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 the condition in
				  paragraph 203.5(1)
"b"
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 the condition in subparagraph 203.5(1)
"b"
(1)
				  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 Customer A's used refrigerator at a value of $150
				  toward the purchase price of the new refrigerator. Customer A pays Hometown
				  Appliance $500 in cash. The trade-in provision applies as both conditions in
				  paragraph 203.5(1)
"b"
and subparagraph
				  203.5(1)
"b"
(1) 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 in paragraph
				  203.5(1)
"b"
and subparagraph 203.5(1)
"b"
(1)
				  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 in paragraph 203.5(1)
"b"
and
				  subparagraph 203.5(1)
"b"
(2) have been met.