Section 35.01.02.044 - TRADE-INS, TRADE-DOWNS AND BARTERSections 63-3612, 63-3613, 63-3621, Idaho Code
01.Trade-Ins. A trade-in is the amount allowed by a retailer on merchandise accepted as payment for other merchandise. Merchandise is tangible personal property which is, or becomes, part of an inventory held for resale.02.Trade-In Allowance. When a retailer sells merchandise from his resale inventory and lets the customer trade in other goods which the retailer places in his resale inventory, the taxable sales price of the merchandise may be reduced by the amount allowed as trade-in. To qualify for the trade-in allowance, the property traded in meets all of the following criteria:a. The property is consideration delivered by the buyer to the seller;b. The sales documents, executed not later than the time of sale, identify both the property being purchased and the property being traded in; andc. The delivery of the trade-in and the purchase are components of a single transaction.d. Example: A customer buys a car from a dealer for four thousand dollars ($4,000). A trade-in of one thousand five hundred dollars ($1,500) is allowed for the customer's used car. Tax is charged on two thousand five hundred dollars ($2,500).03.Trade-Downs. A trade-down is a transaction in which a vendor accepts a trade-in from the customer that equals or exceeds the value of the merchandise sold to the customer. The taxable sales price is reduced to zero (0) and no sales tax is due on the transaction.04.Disallowed Trade-In Allowances. a. Private Party Transactions. A trade-in allowance is not allowed on transactions between individuals because the trade-in property does not become a part of an inventory held for resale. i. Example: Two (2) individuals exchange cars of equal value. No money, property, service, or consideration other than the cars are exchanged. Both parties pay tax on the fair market value of the vehicle received in the barter.ii. Example: Two (2) individuals, neither of whom are car dealers, exchange cars of different values. Tom's vehicle, which is worth ten thousand dollars ($10,000), is transferred to Bill. Bill's car, which is worth eight thousand dollars ($8,000), is transferred to Tom. Bill pays Tom two thousand dollars ($2,000). The trade-in allowance is not applicable because neither car is merchandise. Tom pays use tax on eight thousand dollars ($8,000); Bill pays use tax on ten thousand dollars ($10,000).b. Manufactured Homes, New Park Model Recreational Vehicles, and Modular Buildings. Trade-in allowances are not allowed on the sale of manufactured homes, new park model recreational vehicles, and modular buildings. See IDAPA 35.01.02.048 of these rules.05.Insurance Settlements. An insurance settlement does not qualify as a trade-in. Example: Tom is involved in a car accident. His insurance company determines the damage exceeds the value of the car and settles with Tom on that basis. If Tom buys another car, he pays sales tax on the entire sales price of the replacement car.06.Core Charges. Parts for cars, trucks, and other types of equipment are often sold with an added core charge. When the used core is returned, the core charge is refunded. This is essentially a trade-in of a used part for a new part. Since the seller cannot be certain that the customer will return a reusable core, such core charges are taxable. The tax on the core charge will be refunded by the seller at the time credit for the core charge is allowed.07.Trade-In for Rental/Lease Property. When tangible personal property is traded in as part payment for the rental or lease of other tangible personal property, sales tax applies to all payments made after the value of the trade-in property has been depleted and the lessor begins charging for the lease or rental. The methods of applying the trade-in value to the lease are: a. The trade-in value may be subtracted from the value of the leased or rented property, thereby reducing the monthly payments and the sales tax due on those payments.b. The trade-in value may be subtracted from the initial lease payments, with no sales tax due on those payments until it is used up.c. A combination of the two (2) methods, above.d. Example, a lessor leases a car for thirty-six (36) months at two hundred fifty dollars ($250) per month. The value on which the lease payments are based is ten thousand dollars ($10,000). The customer trades in a car worth two thousand dollars ($2,000).i. Alternative 1: The customer and lessor agree to reduce the value on which the lease is based by two thousand dollars ($2,000) and reduce the payments to only two hundred dollars ($200) per month for thirty-six (36) months. Sales tax is due on each two hundred dollar ($200) payment.ii. Alternative 2: The customer and lessor agree to apply the two thousand dollar ($2,000) trade-in allowance against the two hundred fifty dollar ($250) per month payments for the first eight (8) months of the lease. Sales tax is not due until the trade-in value is used up and the lessee is required to begin making monthly payments.iii. Alternative 3: The customer and lessor agree to combine the two methods and apply one thousand dollars ($1,000) against the value on which the lease is based and use the remaining one thousand dollars ($1,000) against the monthly payments, reducing the sales tax liability accordingly.08.Rental/Lease Property Traded-In. When a person disposes of tangible personal property that is leased and assigns his right to purchase the leased property to the retailer, no trade-in allowance is given for the amount of the residual buyout paid by the retailer. However, if the residual buyout amount which the lessee would pay to purchase the property is less than the amount that would be allowed by the retailer as a trade-in if the lessee had actually owned the vehicle, then the taxable sales price may be reduced by the difference between the total trade- in amount and residual buyout.a. Example: A person is the lessee of an automobile. Near the end of the lease term, the lessee enters into an agreement to purchase a new vehicle from an automobile dealer. The residual buyout amount for the leased vehicle is ten thousand dollars ($10,000). The retailer would allow nine thousand dollars ($9,000) as a trade-in amount if the lessee owned the vehicle. Since the amount the automobile dealer is willing to allow as a trade-in is not greater than the residual buyout amount, there is no reduction in the taxable sales price.b. Example: A lessee trades in his leased automobile for a new vehicle. The residual amount is ten thousand dollars ($10,000). The automobile dealer allows twelve thousand dollars ($12,000) as a trade. In this case, the sales price of the new vehicle is reduced by the difference between the residual amount and the total trade-in, or two thousand dollars ($2,000).Idaho Admin. Code r. 35.01.02.044