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Regulatory Update: OADA Argues that Negative Equity is Not Taxable

At the present time, whether negative equity is taxable in Ohio is unclear.  The Ohio Department of Taxation has asked The Ohio Automobile Dealers Association to explain why motor vehicle dealers should not charge sales tax on negative equity added to amounts financed in purchase and lease transactions.  The Ohio Automobile Dealers Association vehemently opposes any attempt to charge sales tax on negative equity if it is properly disclosed, and has communicated its reasons to the Department of Taxation. 

Why isn’t negative equity taxable?  

1.       We consider it inequitable to tax the negative equity.  Given the fact that sales tax was assessed when the consumer purchased the vehicle, it seems unjust to tax the consumer a second time when the same vehicle is being traded as part of another transaction.

2.       Reg. Z of the Truth in Lending Act requires negative equity to be disclosed in a specific manner.  Negative equity cannot be buried in the cash price of the vehicle.  Otherwise, the incremental increase in sales tax might be considered an undisclosed finance charge- a hidden cost of financing negative equity.  Instead, federal law requires negative equity to be disclosed as a separate line item as an additional amount financed.  Other states which have reviewed this issue treat the negative equity disclosed as an additional amount financed as a non-taxable item.

            As our discussions with the Ohio Department of Taxation continue, we will update our members.  Remember to check this website for updates.