Information Release

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