WAC 458-20-247
Trade-ins, selling price, sellers' tax
measures. (1) Introduction. This section explains the
measure of tax when a trade-in is included in the sale of
tangible personal property. It explains how and when the
retail sales or use tax exclusions apply and the recordkeeping
requirements needed to document the transactions.
The value of "trade-in property of like kind" is excluded
from the definitions of "selling price" in RCW 82.08.010 and
the definition of "value of the article used" in RCW 82.12.010.
Unless otherwise stated, "tax," "taxable," and
"nontaxable," as used in this section, refer to retail sales
or use tax only. The terms "trade-in," "traded in," and
"property traded in" have their ordinary and common meaning. The terms refer to property applied, in whole or in part,
toward the selling price of property of like kind. Readers
are advised that the fact that sales and purchase transactions
might be characterized as a "like kind" under Section 1031 of
the Internal Revenue Code does not control for the purpose of
the trade-in exclusion in RCW 82.08.010 and 82.12.010.
(a) Examples. This section contains examples which
identify a number of facts and then state a conclusion. The
examples should be used only as a general guide. The tax
results of other situations must be determined after a review
of all of the facts and circumstances.
(b) References to related sections. The department of
revenue (department) has adopted other sections that readers
may want to refer to.
(i) WAC 458-20-106 Casual or isolated sales -- Business
reorganizations;
(iii) WAC 458-20-208 Exemptions for wholesale sales of
new motor vehicles between new car dealers and for
accommodation sales;
(iv) WAC 458-20-211 Leases or rentals of tangible
personal property, bailments; and
(v) WAC 458-20-272 Tire fee -- Core deposits or credits.
(2) General nature of the trade-in exclusion. RCW 82.08.010 and 82.12.010 define the terms "selling price" and
"value of the article used," in pertinent part, to mean the
total amount of consideration, except separately stated
trade-in property of like kind, including cash, credit, or
tangible personal property, expressed in terms of money paid
or delivered by a buyer to a seller. As a result, the buyer
of tangible personal property is entitled to reduce the
measure of retail sales or use tax if:
• The buyer delivers the trade-in property to the seller;
• The trade-in property is delivered as consideration for
the purchase; and
• The property traded in is "property of a like kind."
(a) The trade-in exclusion applies to all trade-in
property of like kind delivered by a buyer to a seller as
consideration for a purchase. Thus, if a buyer trades in two
motor vehicles when purchasing one motor vehicle, the buyer is
entitled to a reduction in the measure of retail sales tax
based on the value of both trade-in vehicles.
(b) The trade-in exclusion is limited to retail sales and
use taxes. There is no comparable exclusion for business and
occupation (B&O) tax. (See definition of "gross proceeds of
sales" in RCW 82.04.070 and of "value proceeding or accruing"
in RCW 82.04.090.)Sales tax need not have been paid on the
item being traded in to be eligible for the trade-in
exclusion.
(3) Buyer to deliver trade-in property to seller. The
buyer must deliver trade-in property to the "seller."
(a) RCW 82.08.010 defines "seller" as "every person
...making sales at retail or retail sales to a buyer, purchaser,
or consumer, whether as agent, broker, or principal." There is
no requirement that the seller be the owner of the property
being sold to the buyer. RCW 82.08.010 anticipates and
includes situations where a "seller" is selling property that
he or she does not actually own, such as in consignment sales
transactions.
For example, Broker enters into a consignment sale
contract with Susan Smith to sell her Boat A. John Doe
contacts Broker expressing interest in purchasing Boat A,
provided his Boat B is accepted as a trade-in on the purchase.
John Doe executes a purchase agreement with Broker which
specifically identifies both Boat A being purchased and the
trade-in. Broker accepts delivery and ownership of Boat B and
places Boat B into Broker's own inventory. In turn Broker
arranges delivery of the craft purchased to John. The buyer
(John) has delivered the trade-in property (Boat B) to the
seller (Broker). There is no requirement that Broker purchase
Boat A from Susan (thereby becoming the owner) prior to
selling Boat A to John and accepting Boat B as trade-in
property because, as a broker, Broker is a seller under RCW 82.08.010.
(b) The trade-in exclusion does not apply to transactions
where a seller transfers tangible personal property in or out
of its own inventory in exchange for other property it also
owns.
(4) Trade-in as consideration. Property traded in must
be consideration delivered by the buyer to the seller. The
sales documents must identify the tangible personal property
being purchased and the trade-in property being delivered to
the seller. This does not require simultaneous transfers of
the property being traded in and the property being purchased,
but it does require that the delivery of the trade-in and the
purchase be components of a single transaction. Sales
documents, executed not later than the date the trade-in
property is delivered to the seller, must identify the
property purchased and the trade-in property as more fully
explained in subsection (8) of this section.
Examples:
(a) Jane Doe offers to purchase Sailboat A from Dealer,
if Dealer accepts her Sailboat B as a trade-in on the
purchase. Dealer declines to accept ownership of Jane's
Sailboat B, but instead offers to sell Sailboat B on a
consignment basis with the net proceeds to be applied toward
the purchase if Sailboat B is sold within three months. Jane
accepts and Sailboat B is sold within the three-month period,
and the net proceeds are applied to Jane's purchase of
Sailboat A.
Jane is not entitled to the trade-in exclusion. An
agreement to sell property on consignment does not constitute
consideration "paid or delivered by a buyer to a seller," even
if the subsequent proceeds are applied to the purchase price.
(b) Sally Jones decides to upgrade from her existing
motor home to a new, larger motor home. The salesperson at a
local RV dealership explains that while the dealership does
not currently have on hand a motor home meeting Sally's needs,
it can order one for her from the manufacturer. The
salesperson also explains that if Sally trades in her motor
home at the time she enters into the purchase contract, the
dealership will accept the motor home as a down payment toward
the purchase of the new motor home. Sally signsthe purchase
contract, the dealership orders the new motor home, and Sally
delivers her motor home to the RV dealership (who accepts
ownership of the motor home). Sally's new motor home is
delivered to her eight months later.
Sally is entitled to the trade-in exclusion because the
motor home was delivered to the RV dealership as consideration
paid toward her purchase of the new motor home.
(c) Mr. B and Coastal Brokers enter into a consignment
sales agreement. Under the terms of this agreement, Coastal
Brokers will sell Mr. B's sailboat on a consignment basis and
at the time of sale place the proceeds due Mr. B into a trust
account for use toward a possible purchase of a yacht by Mr.
B. Mr. B's sailboat is sold and the proceeds due to Mr. B
placed in the trust account. Mr. B subsequently purchases a
yacht from Coastal Brokers, and the trust account proceeds are
applied to the purchase price of the yacht.
Mr. B is not entitled to the trade-in exclusion. The
delivery of Mr. B's sailboat to Coastal Brokers and Mr. B's
purchase of the yacht are not components of a single
transaction. In addition, Mr. B's delivery of his sailboat
for consignment sale by Coastal Brokers does not constitute
consideration "paid or delivered by a buyer to a seller," even
if proceeds from the sale are applied to the purchase of the
yacht.
(d) John Smith agrees to purchase Travel Trailer A from
Dealer if Dealer accepts John's Travel Trailer B as a trade-in
on the purchase. Dealer accepts ownership of Travel Trailer B
at an agreed-upon value, on the condition that John pay Dealer
a monthly fee to reimburse Dealer for financing costs
associated with Travel Trailer B. This fee is to be paid for
a period of four months or until Dealer sells Travel Trailer
B, whichever is shorter. John has no further responsibility
with respect to Travel Trailer B after this period.
John is entitled to the trade-in exclusion because he
delivered Travel Trailer B to Dealer as consideration paid
toward Travel Trailer A. The fees John paid to reimburse
Dealer for financing costs associated with the trade-in
property do not change the nature of the transaction, though
for the purposes of the trade-in exclusion they do reduce the
originally agreed-upon value of the trade-in property.
(5) Property of like kind. The term "property of like
kind" means articles of tangible personal property of the same
generic classification. It refers to the class and kind of
property, not to its grade or quality. The term includes all
property within a general classification rather than within a
specific category in the classification. Thus, as examples,
it means furniture for furniture, motor vehicles for motor
vehicles, licensed recreational land vehicles for licensed
recreational land vehicles, appliances for appliances, auto
parts for auto parts, and audio/video equipment for
audio/video equipment. These general classifications are
determined by the nature of the property and its function or
use. It may be that some kinds of property fit within more
than one general classification. For example, a motor home is
both a motor vehicle and a licensed recreational land vehicle.
Thus, for purposes of the trade-in exclusion, a motor home
may be taken as a trade-in on a travel trailer, truck, camper,
or a truck with camper attached, and vice versa. Similarly, a
travel trailer may be taken as trade-in on a motor home even
though a travel trailer is not a motor vehicle; both are
licensed recreational land vehicles. Conversely, a utility
trailer may not be taken as trade-in on a travel trailer
because a utility trailer is neither a motor vehicle nor a
licensed recreational land vehicle. Likewise a car may not be
taken as trade-in on a camper and vice versa.
It is not required that a car be traded in exclusively on
another car in order to get the trade-in reduction of the tax
measure. It could, as well, be traded in as part payment for
a truck, motorcycle, motor home, or any other qualifying motor
vehicle. Similarly, a sofa for a recliner chair, a pistol for
a rifle, a sailboat for a motorboat, or a gold chain for a
wrist watch are the kinds of generic trade-in transfers which
would qualify. The exclusion of the value of property traded
in, however, does not include such things as a motorcycle for
a boat, a diamond ring for a television set, a battery for
lumber, computer hardware for computer software, or farm
machinery (including tractors and self-propelled combines) for
a car.
(6) Value of property traded in. The seller and buyer
establish the value of property traded in. The parties may
not overstate the value of the trade-in property in order to
artificially lower the amount of retail sales or use tax due.
Absent proof of a higher value, the property traded in must be
determined by the fair market value of similar property of
like quality, quantity, and age, sold or traded under
comparable conditions.
(7) Trade-in value exceeds selling price. If the
trade-in value exceeds the selling price of the item sold, the
selling price of the item being purchased should be used as
the trade-in value. For example, a Washington resident
purchases a car with a value of $15,000 and trades in a car
with a fair market value of $17,000. The net due to the
purchaser is $2,000. When the seller completes the excise tax
return, he or she should report a trade-in value of $15,000
and not $17,000 because the trade-in value is capped at
selling price of the item being purchased.
(8) Recordkeeping. RCW 82.32.070 requires every person
liable for any tax to keep and preserve records from which tax
liability can be determined. To substantiate a claim for the
trade-in exclusion, the sales agreement and/or invoice must
identify both the property being purchased and the trade-in
property. Such identification includes the model number,
serial number, year of manufacture, and other information as
appropriate. The sales agreement and/or invoice must also
specify the selling price and the value of the trade-in
property.
A copy of the sales agreement or invoice must be retained
as a part of the seller's sales records. The following is an
example of an invoice providing the necessary information
regarding a sales transaction with trade-in:
Sold: 2009 Mountain Home 8.5 ft. Camper
Model MH-20DT, Serial No. 200010
$19,075
Less "trade-in" - 1983 Meadowlark 8 ft.
Camper
Model No. ML883, Serial No. 0001
$2,000
Subtotal
$17,075
Retail Sales Tax
Total
(9) Encumbered property traded in. A buyer is entitled
to full value for trade-in property, which is otherwise
encumbered by a security interest or the subject of a
conditional sale, or retail installment sales contract.
(10) Casual or isolated sales. The retail sales tax
applies to all casual or isolated retail sales made by any
person who is required to be registered and reporting tax to
the state. The trade-in exclusion applies in the case of a
casual or isolated sale, provided the statutory requirements
are satisfied. The recordkeeping requirements explained in
subsection (8) of this section apply to casual or isolated
sales.
Persons who are not engaged in business activity, e.g.,
private persons, are not required to be registered and are not
required to collect sales tax on their casual or isolated
sales. See RCW 82.08.0251 and WAC 458-20-106. The use of
property acquired through casual sales is subject to use tax. See RCW 82.12.020 and WAC 458-20-178.
(11) Trade-ins as sales. RCW 82.04.040 defines the term
"sale" in pertinent part to mean "any transfer of the
ownership of, title to, or possession of property for a
valuable consideration." When property is traded in,
ownership in that property is transferred. As a result, under
the law a buyer delivering trade-in property to a seller is
making a sale of the trade-in property.
(a) If the buyer is not in the business of selling the
type of property being traded in the buyer incurs no B&O tax
liability. See WAC 458-20-106.
(b) On occasions where the buyer is in the business of
selling the type of property being traded in, the buyer incurs
a B&O tax liability.
For example, Don's Leasing purchases a new car from Tom
the Dealer. This car will be part of Don's inventory of cars
that it rents to customers. Don delivers a used car out of
its inventory to Tom the Dealer as a part of the consideration
paid for the new car. The trade-in of the used car by Don is
considered a wholesale sale to Tom. This is not a casual or
isolated sale because Don is in the business of selling cars
in the form of rentals.
(c) In most cases, a buyer delivers trade-in property to
a seller who is in the business of reselling trade-in property
(e.g., a buyer trading in an automobile to a new car dealer).
The buyer in these cases has no responsibility to collect
retail sales tax.
(12) Retail services. The exclusion of the value of
property traded in from the selling price tax measure applies
only to sales involving tangible personal property traded in
for tangible personal property sold. It does not apply to any
transactions involving services that have been statutorily
included as "sales at retail." See RCW 82.04.050. For
example, a construction contractor may not accept part payment
in tangible personal property to thereby reduce the sales tax
measure of the construction contract selling price. Similarly, a seller of tangible personal property may not
accept retail services as part payment to thereby reduce the
selling price tax measure. Such transfers neither qualify as
trade-in transfers of tangible property nor "in-kind"
transfers.
(13) Trade-in for rental property. Under RCW 82.04.050,
rentals or leases of tangible personal property are "retail
sales." The "selling price" is also the measure of tax for
such rentals and leases. Where tangible personal property is
traded in as part payment for the rental or lease of property
of like kind (e.g., a used computer against the rental of a
new one), the sales tax will apply to all payments after the
value of the property traded in has been depleted or consumed
and the lessor of the property actually begins making charges
for the lease or rental of tangible personal property. Refer
to WAC 458-20-211 for more information regarding the
tax-reporting responsibilities with respect to lease or rental
transactions.
A lessee must first purchase leased property before
trading it in toward the purchase/lease of other property to
be entitled to the trade-in exclusion. A buyer cannot satisfy
the statutory requirement that the trade-in property be
delivered to the seller as a part of the consideration for the
purchased property if the buyer does not have ownership of and
the right to sell the property being traded in. For example,
Jane Doe leases Auto A from Leasing Company. Jane decides to
lease a newer Auto B from Leasing Company. Jane exercises her
option to purchase Auto A, and then delivers Auto A as a
trade-in towards the lease of Auto B. Jane is entitled to the
trade-in exclusion. By delivering her ownership of Auto A to
Leasing Company, Jane has satisfied the statutory requirement
that she as the buyer deliver trade-in property to the seller
as a part of the consideration paid for Auto B.
(14) Real property transfers. Because the trade-in
exclusion is limited to tangible personal property, the
trade-in exclusion does not apply to sales of real property or
transactions where real property is traded in for tangible
personal property.
(15) Use tax. RCW 82.12.010 defines the measure of the
use tax as the "value of the article used." As explained in
subsection (2) of this section, the statutory definition
excludes "trade-in property of like kind." Therefore, the
measure of the use tax for tangible personal property upon
which no retail sales tax has been paid (e.g., if it were
purchased in another state) is the same as the measure of the
retail sales tax. In such cases the value of the property
traded in should be excluded from the use tax measure.
The consumer-user, or any seller who has a duty to
collect this state's use tax, must retain the sales records
reflecting property "traded in," as explained in subsection
(8) of this section.