The Ohio Department of Taxation has adopted Rule 5703-9-36, which explains the calculation of sales tax due on the purchase of a new motor vehicle when there is a trade-in vehicle carrying negative equity.
A motor vehicle dealer may state the amount of negative equity in different ways on a retail buyer's agreement. How the negative equity, trade-in allowance, or loan payoff amount is displayed on the retail buyer's agreement will determine if it is part of the total vehicle price paid for the newly acquired vehicle and subject to sales tax. The ruling includes a number of examples on how to calculate the sales tax.
If the negative equity amount is included by the dealer in the total vehicle price, it will be included in the base on which sales tax must be charged. Therefore, dealers should exercise care not to include negative equity as part of the total purchase price, so it is not included in the sales tax calculation.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.