Frequently Asked Questions

Sales Tax

These Questions and Answers are courtesy of the Ohio Department of Taxation’s website, www.tax.ohio.gov.  You may find additional FAQs related to sales and use tax and motor vehicles at that web address.

Do rebates reduce the "price" for calculating sales or use tax?

NO. A rebate is money that is or will be paid to the purchaser by the manufacturer after the sale is complete as an incentive to make the purchase. Typically, however, the purchaser assigns the rebate over to the dealer and it is used as all or part of the down payment. Therefore, the rebate amount that is part of the consideration received by the dealer and is part of the price paid upon which the tax is based.

Do dealer cash discounts reduce the price for calculating sales or use tax?

YES. Cash discounts allowed at the time of sale reduce the price for calculating sales or use tax. Discounts allowed after the sale do not reduce the price.

Are farmers exempt from paying sales or use tax on vehicles that are licensed to operate on the highways?

Generally, NO. Farmers are only exempt on equipment that is directly used in farming, such as tractors, planters or combines that plow the fields, plant the crops or harvest the crops. Motor vehicles (automobiles, trucks, etc.) registered for use on the highways and used to transport seed, fertilizers, chemicals or finished products are taxable. APV’s would only qualify for exemption if they are being used primarily (more than 50% of the time) directly in farming (similar to the way a tractor is used).

There is an exception to the general rule and that is a specifically designed vehicle that contains a tank, operated with a power take-off unit (PTO) that is used to spray liquid fertilizers, pesticides, herbicides, etc., on farm lands and crops.  This vehicle is generally owned by someone who is hired by a farmer to provide a farming service and must operate on the highways since it must travel from farm to farm. If the tank/sprayer is not operated by a power take-off unit, the vehicle is subject to the tax while the tank/sprayer unit is not.  In this case, the dealer must provide a separation of the amounts between the vehicle and the tank/sprayer unit.

Another exception would be vehicles and trailers that are primarily used to prevent illness to farm livestock for sale, or to prevent contamination of livestock products for sale. For example, a trailer primarily used to inoculate swine and cattle for sale, or transport sick animals to and from quarantine areas would not be subject to the tax. Also, a trailer owned by the farmer to primarily transport feed to the farm that would otherwise be contaminated if shipped commercially would be exempt. Vehicles owned and used by egg producers to ship eggs from the farm to market under refrigerated conditions would not be subject to the tax.

 Is the luxury tax part of the tax base for calculating sales tax?

The luxury tax expired on January 1, 2003. Dealers should be advised to contact the Internal Revenue Service (1-800-829-1040) to obtain any further information regarding luxury tax.

Can a person trade in more than one motor vehicle on the purchase of a new motor vehicle and deduct the trade-in value of both vehicles?

YES. The combined value of the two or more vehicles given in trade can be used to reduce the “price” of the new motor vehicle being sold by the new motor vehicle dealer. If the value of the traded in vehicles is less than the “price” of the new vehicle, tax is due on the difference. If the value of the traded in vehicles equals or exceeds the “price” of the new vehicle, no tax is due as the “price” would be reduced to zero. (Note: The “price” for calculating sales tax on the new vehicle cannot be less than zero.)  

Does a trade-in reduce the price when calculating sales or use tax?

YES – When a motor vehicle is traded for a new motor vehicle, all-purpose vehicle or off-highway motorcycle.

NO – When a motor vehicle is traded for a used motor vehicle, all-purpose vehicle or off-highway motorcycle.

NO – When a watercraft, outboard motor or personal watercraft is traded for a new or used motor vehicle, all-purpose vehicle or off-highway motorcycle.

NO – When a vehicle is under a valid lease and the lessee is attempting to trade-in the vehicle that is titled in the name of the leasing company. Under the terms of most lease agreements, the leasing company (during the life of the lease) can only sell (transfer title for consideration) the leased vehicle to the lessee or to a dealer. If the leasing company sells the vehicle to a dealer, it is no longer available to be used as a trade-in by the lessee. Note: The answer would be YES if the lessee first purchased the leased vehicle (paying sales tax on the purchase price paid to the leasing company), had title issued in the lessee’s name, and then used the vehicle as a trade-in on the purchase of a new motor vehicle.

YES – When a watercraft, outboard motor or personal watercraft is traded for a new/used watercraft, outboard motor, and/or personal watercraft and the seller (located in-state or out-of-state) is, at the time of sale, licensed as a watercraft dealer through the Ohio Department of Natural Resources, Watercraft Division. License format is OH NNNN ZZ.               

NO – When a watercraft, outboard motor, or personal watercraft is traded for a new/used watercraft, outboard motor or personal watercraft and the seller (located in-state or out-of-state) is not, at the time of sale, licensed as a watercraft dealer through the Ohio Department of Natural Resources, Watercraft Division.                  

NO – When a motor vehicle is traded for a watercraft, outboard motor or personal watercraft.

Does a dealer title a "parts truck" and pay tax when the title is issued?

When a dealer removes a vehicle from inventory (or purchases a vehicle from another dealer) and utilizes the vehicle as a “parts” vehicle, the dealer should title the vehicle in the dealer’s name and remit sales and use tax on the dealer’s acquisition cost. If the dealer purchased the vehicle, the “price” upon which sales tax is calculated is the purchase price. If the dealer acquired the vehicle through trade, the “price” upon which tax is calculated is the value of the trade-in allowance granted when the vehicle was acquired. 

What is included in the "price" of a motor vehicle when calculating the sales and use tax?

“Consideration” or “price” means the aggregate value in money of anything paid or promised to be paid or delivered in exchange for the transfer of either title to or possession of a motor vehicle, all-purpose vehicle, off-highway motorcycle, watercraft, outboard motor or personal watercraft. No deduction may be made from the “consideration” or “price” upon which the tax is based by reason of any trade-in allowance (except for the sale of a new motor vehicle, all-purpose vehicle or off-highway motorcycle by a new motor vehicle dealer upon which a motor vehicle, all-purpose vehicle or off-highway motorcycle is given in trade; OR the sale of a new or used watercraft, outboard motor or personal watercraft by a licensed watercraft dealer upon which a watercraft,  outboard motor or personal watercraft is given in trade) or a manufacturer's rebate. The sales or use tax is computed upon the total amount of consideration, whether in cash, by exchange (trade) or by any means whatsoever.

The tax base should include the amount charged for the following:

1. Base price of vehicle, watercraft or outboard motor

2. Accessories (floor mats, mud flaps, air conditioning, cruise control, radio, CD player, etc.)

3. Freight or transportation charges from the manufacturer to the dealer

4. National advertising that may be charged on a unit basis

5. Service and handling prior to delivery (preparation charge)

6. Documentary fees (does not include separately stated title and registration fees or fees associated with the documentation of a watercraft with the US Coast Guard)

7. Undercoating

8. Extended warranty, service or maintenance contracts sold at the same time as the item covered by the extended warranty, service or maintenance agreement. (Note: Sales of extended warranties, service or maintenance agreements that are sold some time after an item is sold are subject to sales tax, but tax will be paid directly to Ohio , not through the Clerks of Courts.)

9. Delivery charges from the dealer to the customer effective August 1, 2003

**** Special Notes ****
   

Manufacturer’s rebates and cash down payments do not reduce the “price” for calculating sales or use tax. “Price” can be reduced by any cash discount given at the time of sale.

The 12% federal excise tax (FET) levied by the federal government on the purchaser of a heavy truck is not to be included in the “price” since it is a direct federal tax on the consumer.

If the manufacturer repurchases my motor vehicle, watercraft or outboard motor,  pursuant to the lemon law, and replaces it with another vehicle, do I have to pay tax when applying for title on the second vehicle?

YES. According to the lemon law, the manufacturer is required to refund to the purchaser the entire purchase price plus the sales tax. That refund is used to purchase the second motor vehicle, watercraft or outboard motor. Therefore, sales tax must be paid to the Clerk of Courts when obtaining title for the replacement item.

If the manufacturer has refunded the entire purchase price and sales tax, it is eligible to apply for a refund of the sales tax on the first purchase.

How do I obtain a refund if tax has been paid in error?

You must submit an application for sales/use tax refund (form ST-AR) as well as the supporting schedule (ST-AR-S) for vendor-filed claims. You should also submit copies of any documents that are necessary in support of  your application for refund (e.g., receipts issued by the Clerk of Courts, titles issued by the Clerk of Courts, retail buyers agreements or invoices, proof that the entire purchase price was returned to the customer, etc.) See form ST-AR-S for more details. Forms are available on our website.

Special Note on Leased Vehicles Moved Out of State

There is no refund allowed for sales tax paid up front on a motor vehicle when the lessee subsequently removes the vehicle from Ohio . Refunds are allowed on tax paid on leased motor vehicles when the lessee returns the vehicle and is reimbursed all amounts paid on the transaction, or the vehicle is otherwise used in an exempt manner.

Is the amount charged for the Federal Excise Tax (FET) included in the tax base for calculating sales tax?

NO. This is a 12% federal excise tax, which is required to be collected by a motor vehicle dealer when the dealer sells a heavy truck.  Since it is a direct tax on the purchaser, it is not part of the tax base for collecting sales tax.

Are members of the armed services exempt from sales or use tax?

There is no true “statutory” exemption for members of the armed services.  

If the vehicle is purchased in Ohio by a member of the armed services who is a resident of Ohio , Ohio sales or use tax is due.

If the vehicle is purchased in Ohio by a member of the armed services who declares that he/she is a resident of another state or country, but will be registering the vehicle for use in Ohio while stationed here, Ohio sales or use tax is due.        

If the vehicle is purchased in Ohio by a member of the armed services who declares that he/she is not a resident of Ohio and that the vehicle will be immediately removed from Ohio for titling and registration in the other state, Ohio sales or use tax is not due. A nonresident affidavit must be provided by the purchaser. Use the ATPS exemption code “NR: Nonresident affidavit – immediate removal.”                    

If the vehicle is purchased outside of Ohio by a member of the armed services who is a resident of Ohio and the vehicle is to be driven in Ohio , Ohio sales or use tax is due. 

If the vehicle is purchased outside of Ohio by a member of the armed services who is a resident of Ohio and the vehicle is to be driven outside Ohio, the Ohio Supreme Court has ruled that no Ohio sales or use tax is due. The Supreme Court did not indicate the amount of time that a vehicle had to be driven outside of Ohio to qualify, so the department has adopted the “six-month” rule in that the period of time must be more than six months (as evidenced by a copy of the individual’s military orders indicating out-of-state service for a period of at least six months after the purchase date). The vehicle must be titled in the name of the military person. Use the ATPS exemption code “CM: Conversion – military.”

If the vehicle is purchased outside of Ohio by a member of the armed services who is a resident of Ohio and the vehicle is or is to be driven outside of Ohio for less than six months (member of armed services being transferred to Ohio or is returning to Ohio upon separation from armed services), sales and use tax is due.