ST 1995-06 - -5741.01(G)(4) - Price Temporary Taxable Use of
Inventory Items - April, 1995
This is to clarify the Department of Taxation's position on
acceptable methods that may be used to determine the value of
temporary use of tangible personal property that is held in
inventory for sale but is temporarily used in a taxable
manner.
Division 5741.01(G)(4) of the Ohio Revised Code provides
that:
- "In the case of tangible personal property held in this
state as inventory for sale or lease, and that is temporarily
stored, used, or otherwise consumed in a taxable manner, the
price is the value of the temporary use. A price
determination made by the consumer is subject to review and
redetermination by the commissioner."
For the purpose of determining the value of the temporary use
of any item held for sale, three methods of computation,
listed by order of preference, are recommended for use.
FAIR MARKET RENTAL METHOD
If any item from an inventory held for sale or lease is used
temporarily in a taxable manner, a fair market rental price
for the item, prorated by the length of time used, should be
used as the value of the temporary use.
-
Example: A new car dealer decides to use a
travel van from inventory to take his sales staff to a
sporting event on Sunday. The fair market rental value of a
similar van is $75/day plus $.25/mile. The mileage is 100
miles round trip.
The value of the temporary use is calculated as $75 + $.25 X
100 mi. = $75 + $25 = $100
COST METHOD
As an alternative, with the exception of motor
vehicles, the purchase price (cost) of the item
divided by the product of the minimum useful life, as
depicted in the true value computation (TVC) tables for Ohio
Personal Property Tax times 12 months, will yield a
representative monthly value for that item. (Instruction
booklet for the true value computation for Ohio Personal
Property Tax is available at any office of the Ohio
Department of Taxation or in the County Auditor's office in
any Ohio county.) This representative monthly value plus any
actual cost of ownership can then be prorated for the amount
of time the item is actually used or stored in a taxable
manner.
-
Example: A computer dealer used a computer
system from sales inventory for one and one-half months to
do accounting work and analyze his business activity.
Dealer cost $5000 computer system
Class II minimum life 6 years (TVC tables)
$5000
= $5000 =
$69.45
(6
X 12) 72
$69.45 + monthly cost of ownership = representative monthly
value
($69.45 + monthly cost of ownership) X 1.5 months = the value
of temporary use ("price")
INCOME METHOD
If an item from inventory is used to generate revenue, the
income resulting from that use is the value of that use and
can be used in calculating the tax due.
-
Example: A watercraft dealer uses one of
his boats from inventory to provide a charter service for a
three-hour tour of lake islands. The dealer charges $50/hr
for the crew and $150/hr for the boat.
The value of the temporary use of the boat for three hours is
$450 (3 X $150).
TEMPORARY USE OF MOTOR VEHICLE IN INVENTORY
NEW DEMOS
For the purpose of determining the value of the temporary use
of a new motor vehicle from inventory, where no market lease
or rental price exists, first divide the unadjusted dealer's
purchase invoice total by 48 months; then add either an
additional 15% or the actual cost of ownership.
Example:
Dealer cost (invoice) $10000 = $208.34
48
months
EITHER
$208.34 + (15%X$208.34) = $239.58 representative monthly
value
OR ALTERNATIVELY
For a more simplistic calculation which yields approximately
the same monthly value, the acceptable formula to use is 2.4
% times the unadjusted dealer's purchase invoice.
Dealer cost (invoice) $10000 X
2.4 % = $240.00 monthly value
USED DEMOS
For the purpose of determining this alternative value of the
temporary use of a used motor vehicle in inventory the
acceptable formulas would be as follows:
If
purchased: Add the dealer invoice plus
detailing plus repairs and divide the sum by 48 months; then
add either an additional 15% or the actual cost of ownership.
Example:
$1500 invoice +
$100 paint = $1600 = $33.34
48
months
48
EITHER
$33.34 + (15%X$33.34) = $38.34 representative monthly value
OR ALTERNATIVELY
An acceptable simple computation that yields a very similar
result is 2.4 % times the sum of the dealer's purchase
invoice and any additional expenses.
2.4% X $1600 = $38.40 monthly value
If taken on
trade: Add the wholesale book value plus
parts plus repairs plus preparation and divide the sum by 48
months; then add either an additional 15% or the actual cost
of ownership.
Example: $1200 whsl bk vl + $100 tires + $100 parts + $100
prep = $1500
EITHER
$1500
= $31.25
48
months
$31.25 + (15%X$31.25) = $35.94 representative monthly value
OR ALTERNATIVELY
The acceptable simple calculation is 2.4 % times the sum of
the wholesale book value and any
additional expenses.
2.4% X $1500 = $36.00 representative monthly value
*** SPECIAL NOTE ***
All the previous calculations for use of a demo, new
or used, can be prorated by the ratio of taxable use of the
vehicle to the total usage of the vehicle. Some examples of
taxable use of demos by a motor vehicle dealer include the
assignment of a vehicle to company personnel or a relative
for occasional or exclusive use, courtesy cars furnished to
repair/warrantee customers at no charge, or any other use of
a vehicle with the exception that follows. The Department of
Taxation does not consider the usage of a demo vehicle in a
test drive or test ride by a potential customer of the
dealership to be a taxable use.
If you have any questions regarding this matter, you should
call us at 1-888-405-4039.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750