Indiana – Exchange of Certain Vehicles Nontaxable

SALT Report 1894 – The Indiana Department of Revenue issued a letter of finding regarding an Indiana dealer whose customers traded in recreational vehicles for travel trailers. During an audit, the Department determined that the Taxpayer did not collect and remit sales tax on sales in which the Taxpayer offered a discount when a customer traded in a travel trailer to purchase an RV, or when a customer traded in an RV to purchase a travel trailer.  As a result, the Department assessed sales tax, interest, and penalties.

The Taxpayer appealed the assessment claiming that it was entitled to offer a “trade-in allowance” because the trade-ins were “like kind” exchanges, and not subject to sales tax under IC § 6-2.5-1-5(b). The regulation provides that, “gross retail income does not include that part of the gross receipts attributable to the value of any tangible personal property received in a like kind exchange in the retail transaction.”  Further, IC § 6-2.5-1-6 provides that a like kind exchange means the reciprocal exchange of personal property between two persons when:

  • The property exchanged is of the same kind or character, regardless of grade or quality, and
  • The persons exchanging the property both own the property prior to the exchange

In their ruling the Department notes an update to Sales Tax Information Bulletin 28S in which the Department states that they consider the exchange of motorized and non-motorized recreational vehicles to be like-kind.  Therefore, when the Taxpayer’s customers traded in their RV to purchase a travel trailer, or when they traded in their travel trailer to purchase an RV, the Department must now consider these like-kind exchanges that are exempt from sales tax.  As a result, the Department ruled in favor of the Taxpayer and dismissed the assessment.

For Further Information:

Indiana Department of Revenue – Letter of Findings No. 04-20120348