TO: ALL COUNTY AUDITORS - Bulletin No. 251
FROM: Edgar L. Lindley, Tax Commissioner
DATE: January 26, 1981
RE: Inventory exclusion -New taxpayers
When a taxpayer first engages in business in Ohio, he is
liable for a pro-rated tax on his personal property for the
current return-year. If he has acquired a going business, he
is allowed to exclude property which the predecessor returned
for the same year.
For inventories, the exclusion has previously been assumed to
be equal to the predecessor's average inventory unless the
inventory turnover rate indicates that none of the
transferred inventory appeared in the predecessor's reported
inventory. The Ohio Supreme Court, in C & R Warehouse, Inc v.
Lindley recently stated that the amount of inventory
excludable by the new taxpayer is the amount of inventory
transferred or the average inventory associated with the
transferred inventory reported by the predecessor for the
same return-year, whichever is less. Any excess of his
estimated average inventory over the excludable amount is
listable by the new taxpayer.
This method of calculating the exclusion is applicable to all
assessments which are open for amendment, effective
Assume Taxpayer A has filed his current year's tax return and
sells his entire business to Taxpayer B on July 1. Taxpayer B
has not been engaged in business in Ohio before that date.
The allowable inventory exclusion for B's new taxpayer return
under differing inventory levels is as illustrated below.
Amount transferred $15,000 $15,000 $15,000
Amount reported by A 17,500 14,000 14,000
Amount estimated by B 19,000 19,000 12,000
Amount excludable by B 15,000 14,000 12,000
Amount reportable by B 4,000 5,000 -0-