Taxpayer is an Indiana dealer selling recreational vehicles
("RVs"), travel trailers, and parts. Pursuant to an audit, the
Indiana Department of Revenue ("Department") determined that, during
2009, 2010, and 2011 tax years, Taxpayer failed to collect and remit the gross
retail tax ("sales tax") on several of Taxpayer's sales where
Taxpayer used a discount when a customer traded in a travel trailer to purchase
an RV, or when a customer traded in an RV to purchase a travel trailer. The
Department's audit assessed sales tax, interest, and penalty.
…
The only issue that Taxpayer protested concerns RV sales for
which Taxpayer's customers traded in travel trailers, and travel trailer sales
for which the Taxpayer's customers traded in RVs ("trade-ins"). For
these sales, Taxpayer deducted the trade-in amount ("trade-in
allowance") from the sales price of the RVs or travel trailers they sold
in the trade-in, depending on the transaction. Taxpayer thus claimed that it
was entitled to the "trade-in allowance" because the trade-ins were
"like kind" exchanges, and not subject to sales tax. The Department's
audit disagreed that travel trailers and RVs were "like kind"
vehicles, and assessed Taxpayer sales tax based on the full amount of the sales
price.
…
IC § 6-2.5-1-5(b) provides that "'[g]ross retail
income' does not include that part of the gross receipts attributable to... (1)
the value of any tangible personal property received in a like kind exchange in
the retail transaction, if the value of the property given in exchange is
separately stated on the invoice, bill of sale, or similar document given to
the purchaser." IC § 6-2.5-1-6 states:
(a) "Like kind exchange" means the reciprocal
exchange of personal property between two (2) persons, when:
(1) The property exchanged is of the same kind or character,
regardless of grade or quality; and
(2) The persons exchanging the property both own the
property prior to the exchange.
(b) A "like kind exchange" may be a part of a
transaction involving additional consideration other than the exchanged
property.
(c) Notwithstanding subsection (a), a "like kind
exchange" does not occur when:
(1) The transaction involves more than two (2) persons; or
(2) One (1) party to the transaction, through agreement or
negotiation with the second party, acquires personal property for the primary
purpose of exchanging that property for like kind property held by the second
party.
At the time that the sales occurred, Sales Tax Information
Bulletin 28S (February 2008, 200801130 Ind. Reg. 045080050NRA) and Sales Tax
Information Bulletin 28S (December 2009, 20100127 Ind. Reg. 045100029NRA)
provided that:
The deduction for a trade-in allowance applies only to
"like-kind exchanges" in which the motor vehicle or trailer to be
traded in is owned and titled in the name of the customer. A like-kind exchange
means a motor vehicle traded for another motor vehicle or a trailer traded for
another trailer. A trade-in of a motor vehicle for a trailer is not a "like-kind
exchange" and is not deductible in the calculation of the amount of the
taxable gross retail income received by the dealer. Non-like-kind exchanges are
merely another form of a payment to the dealer and do not reduce the dealer's
gross retail income.
Because of this, the audit found that the trade-ins where
purchasers traded in their RVs upon purchasing Taxpayer's travel trailers, or
where purchasers traded in their travel trailers upon purchasing Taxpayer's
RVs, were not "like-kind exchanges."
However, Sales Tax Information Bulletin 28S was recently
updated, and while the statement above is still included, an exception to the
above statement was added that is pertinent to the case at hand. Sales Tax
Information Bulletin 28S (April 2012, 20120530 Ind. Reg. 045120259NRA) now
provides that:
Note: one exception to the general rule that a motor vehicle
traded in for a trailer does not constitute a "like-kind exchange" is
when a motorized recreational vehicle is traded in for a non-motorized
recreational vehicle. In such a case, the Department considers the motorized
and non-motorized recreational vehicles to be like-kind.
Because this update to Sales Tax Information Bulletin 28S
clarifies what was already Departmental policy, for those trade-ins where
purchasers traded in their RVs upon purchasing Taxpayer's travel trailers, or
where purchasers traded in their travel trailers upon purchasing Taxpayer's
RVs, these would be considered "like-kind exchanges," and therefore
would be exempt from sales tax.
It should also be noted that, in some instances, Taxpayer
also accepted a boat as a trade-in for a motor home or a travel trailer. A boat
is a watercraft. A motor home is a motorized recreational vehicle. A travel
trailer is a non-motorized recreational vehicle. Boats and motor homes or boats
and travel trailers are not items of the same kind. Sales Tax Information
Bulletin 28WC (August 2008, 20081001 Ind. Reg. 045080728NRA) provides that
"only a watercraft may be traded for another watercraft" and that
"a vehicle taken in trade for a watercraft is not a like-kind trade, per
statute, and thus does not reduce the taxable selling price." Therefore
these transactions do not qualify for the like kind exchange treatment.
Taxpayer's protest as it pertains to these assessments is denied.
Upon a supplemental audit, the Department will recalculate
the tax due.
