Ohio Administrative Code › Title 5703 - Department of Taxation › Chapter 5703-9 - Sales and Use Tax › Section 5703-9-36 - Sales and use tax, negative equity in motor vehicle sales and leases

Current through all regulations passed and filed through July 1, 2024
(A) "Negative
			 equity" is a term applied when a motor vehicle purchaser is trading in a
			 vehicle with a current value that is less than the amount owed on the existing
			 loan for that vehicle. For example, a customer trades in a motor vehicle to a
			 dealer in connection with the purchase of another vehicle. The dealer allows a
			 five thousand dollar trade-in credit towards the purchase of the second
			 vehicle, but the customer still owes seven thousand dollars on the existing
			 loan. The negative equity amount is two thousand dollars.
(B) A motor vehicle dealer may state the
			 amount of negative equity several ways on a retail buyer's agreement. How the
			 trade-in allowance, negative equity, or loan payoff amount is displayed on the
			 retail buyer's agreement determines if it is part of the total vehicle price
			 paid for the newly acquired vehicle and subject to sales tax. If the negative
			 equity amount is included by the dealer in the total vehicle price, it will be
			 included in the base on which sales tax must be charged. If it is not included
			 in the total vehicle price, the negative equity amount will not be included in
			 the calculation of sales tax.
(C)
			 The examples below will show several situations involving the application of
			 Ohio sales and use tax to sales of motor vehicles when the purchaser is trading
			 in a vehicle with negative equity. All examples will involve the same assumed
			 facts: A dealer is selling a motor vehicle to a purchaser for the negotiated
			 cash price of twenty-five thousand dollars; the purchaser is trading in a
			 vehicle; the dealer allows the purchaser a trade-in credit of five thousand
			 dollars towards the purchase of the newly acquired motor vehicle; the trade-in
			 vehicle has an outstanding loan balance of seven thousand dollars; the negative
			 equity amount is two thousand dollars; the consumer has consented to include
			 the negative equity amount as part of the current transaction;
			  title fees are assumed to be fifteen dollars. The applicable
			 tax rate, for the purpose of the examples is assumed to be seven per cent.
To reflect the difference in the treatment of trade-in vehicles
				when determining the amount subject to sales tax, the examples are given both
				as a purchase of a new vehicle and as a purchase of a used vehicle. (Note: for
				purposes of these examples only, all figures, including tax, have been rounded
				to the nearest dollar.) For the examples involving sales of new vehicles, sales
				tax is calculated by subtracting the applicable trade-in allowance from the
				total vehicle price to arrive at a "tax base." The "tax base" is multiplied by
				the applicable sales tax rate, seven per cent in each example. Calculation B in
				each example reflects this calculation. For the examples involving sales of
				used vehicles, sales tax is calculated on the total vehicle price as Ohio law
				does not allow a deduction from price for the value of a trade-in.
Example 1: In this example, the dealer includes the negative
				equity amount in the total vehicle price. In this example, the negative equity
				is itemized. However, whether the negative equity is separately itemized or
				simply reflected in the base vehicle price (See example 2 in this rule), when
				negative equity is added to the base vehicle price, it is subject to the
				tax.
Example 1a: New Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$25,000
Negative Equity
$ 2,000
Total Vehicle Price
$27,000
Calculation B: Sales Tax
Total Vehicle Price
$27,000
Trade-in Allowance
($ 5,000)
Tax Base
$22,000
Tax @7.00%
$ 1,540
Calculation C: Total Due/Amount Financed
Total Vehicle Price
$27,000
Tax
$ 1,540
Title Fee
$ 15
Total Due/Amount Financed
$28,555
Example 1b: Used Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$25,000
Negative Equity
$ 2,000
Total Vehicle Price
$27,000
Calculation B: Sales Tax
Total Vehicle Price
$27,000
Tax @ 7.00%
$ 1,890
Calculation C: Total Due/Amount Financed
Total Vehicle Price
$27,000
Tax
$ 1,890
Title Fee
$ 15
Total Due/To Be Financed
$28,905
Example 2: In this example, the dealer increases the base
				vehicle price by the negative equity amount. Unlike example 1, the negative
				equity amount is not separately itemized. However, as noted in example 1, the
				result would be the same if the negative equity were itemized separately before
				calculating the total vehicle price. The dealer in this example also increases
				the trade-in allowance to the full amount of the consumer's outstanding loan
				balance (seven thousand dollars).
2a: New Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$27,000 (includes $2,000 negative equity without
						  itemization)
Total Vehicle Price
$27,000
Calculation B: Sales Tax
Total Vehicle Price
$27,000
Trade-in Allowance
($ 7,000) (increases allowance by $2000 to offset
						  negative equity)
Tax Base
$20,000
Tax @7.00%
$ 1,400
Calculation C: Total Due/To Be Financed
Total Vehicle Price
$27,000
Tax
$ 1,400
Title Fee
$ 15
Total Due/To Be Financed
$28,415
2b: Used Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$27,000
Total Vehicle Price
$27,000
Calculation B: Sales Tax
Total Vehicle Price
$27,000
Tax @ 7.00%
$ 1,890
Calculation C: Total Due/To Be Financed
Total Vehicle Price
$27,000
Tax
$ 1,890
Title Fee
$ 15
Total Due/To Be Financed
$28,905
Example 3: In this example, the dealer does not include the
				negative equity amount in the total vehicle price. Rather, the negative equity
				is shown as an additional amount due to a third party (perhaps financed) after
				the computation of the total vehicle price.
3a: New Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$25,000
Total Vehicle Price
$25,000
Calculation B: Sales Tax
Total Vehicle Price
$25,000
Trade-in Allowance
($ 5,000)
Tax Base
$20,000
Tax @7.00%
$ 1,400
Calculation C: Total Due/To Be Financed
Total Vehicle Price
$25,000
Tax
$ 1,400
Title Fee
$ 15
Negative Equity (Amounts Paid To
						  Others)
$ 2,000
Total Due/To Be Financed
$28,415
3b: Used Vehicle Transaction
Calculation A: Negotiated Vehicle Price
Base Vehicle Price
$25,000
Total Vehicle Price
$25,000
Calculation B: Sales Tax
Total Vehicle Price
$25,000
Tax @ 7.00%
$ 1,750
Calculation C: Total Due/Amount Financed
Total Vehicle Price
$25,000
Tax
$ 1,750
Title Fee
$ 15
Negative Equity (Amounts Paid To
						  Others)
$ 2,000
Total Due/To Be Financed
$28,765
(D) In
			 the case of a motor vehicle lease, if the lease agreement includes an amount
			 for negative equity or a payoff for a previous loan or lease, that amount is
			 part of the total amount paid by the lessee and is part of the price and
			 subject to sales and use tax.