Information Release

ST 2003-07 - Changes to the Definition of Price  - July 2, 2003

Am. Sub. H.B. 95 contains a number of changes intended to bring Ohio statutes into compliance with the terms of the Streamlined Sales and Use Tax Agreement. Information on the Streamlined Agreement can be found at www.streamlinedsalestax.org. This information release addresses a substantial amendment to the definition of "price" in R.C. 5739.01(H) and 5741.01(G). This amendment will make two major changes in the meaning of the term "price" for Ohio sales and use tax purposes. The first change, effective July 1, 2003, involves the treatment of certain discounts. The second change, effective August 1, 2003, includes delivery charges in the definition of price.

Sales Tax

As amended by H.B. 95, the general definition of "price" in R.C. 5739.01(H)(1) will be as follows:

(H)(1)(a) "Price," except as provided in divisions (H)(2) and (3) of this section, means the total amount of consideration, including cash, credit, property, and services, for which tangible personal property or services are sold, leased, or rented, valued in money, whether received in money or otherwise, without any deduction for any of the following:
(i) The vendor's cost of the property sold;
(ii) The cost of materials used, labor or service costs, interest, losses, all costs of transportation to the vendor, all taxes imposed on the vendor, and any other expense of the vendor;
(iii) Charges by the vendor for any services necessary to complete the sale;
(iv) On and after August 1, 2003, delivery charges. As used in this division, "delivery charges" means charges by the vendor for preparation and delivery to a location designated by the consumer of tangible personal property or a service, including transportation, shipping, postage, handling, crating, and packing.
(v) Installation charges;
(vi) The value of exempt tangible personal property given to the consumer where taxable and exempt tangible personal property have been bundled together and sold by the vendor as a single product or piece of merchandise.
(b) "Price" does not include any of the following:
(i) Discounts, including cash, term, or coupons that are not reimbursed by a third party that are allowed by a vendor and taken by a consumer on a sale;
(ii) Interest, financing, and carrying charges from credit extended on the sale of tangible personal property or services, if the amount is separately stated on the invoice, bill of sale, or similar document given to the purchaser;
(iii) Any taxes legally imposed directly on the consumer that are separately stated on the invoice, bill of sale, or similar document given to the consumer.

The special definitions of "price" for sales of new motor vehicles and watercraft in R.C. 5739.01(H)(2) and (3) are unchanged. The provisions for accelerating tax payment on certain lease transactions have not been changed, but have been moved from R.C. 5739.01(H)(4) to R.C. 5739.02(A)(2).

For the most part, the new definition of "price" has little effect on the amount of any sale upon which tax will be charged. However, the two substantive changes from prior Ohio law are addressed below.

  1. Discounts

    New R.C. 5739.01(H)(1)(b)(i) provides an exception from the definition of "price" for:

    Discounts, including cash, term, or coupons that are not reimbursed by a third party that are allowed by a vendor and taken by a consumer on a sale;

    The definition of "price" before July 1, 2003 does not allow any deduction for "discounts allowed after the sale." The definition of "price" on and after July 1, 2003 allows "term" discounts to be excluded from "price" if the consumer takes such discount. For example, a vendor might allow a consumer a discount of two percent if an invoice is paid within 30 days. Under prior law, the price of the sale would not be reduced by the amount of the discount. Under the new definition of "price", effective July 1, 2003, such a discount will reduce the taxable price of the sale to the extent the consumer actually takes advantage of it.

    It may happen that a consumer may make a payment and receive a term discount after the vendor has filed a return and remitted tax for the sale in question. In such a case, the vendor may reduce its taxable sales and tax liability on its next return by the amount of the discount allowed and the portion of that discount that reflects the reduction in tax, respectively.

  2. Delivery charges

Under prior law, separately stated delivery charges were not included in the definition of the "price" of a sale. As part of the tax reform and revenue package in H.B. 95, the Ohio General Assembly included "delivery charges" in the definition of "price." As a result, for sales made after August 1, 2003, where the vendor makes a taxable sale to a consumer and charges the consumer a delivery charge, as defined in R.C. 5739.01(H)(1)(a)(iv), that charge is part of the taxable price of the sale. As defined in R.C. 5739.01(H)(1)(a)(iv), a "delivery charge" means:

… charges by the vendor for preparation and delivery to a location designated by the consumer of tangible personal property or a service, including transportation, shipping, postage, handling, crating, and packing.

This statutory change does not make charges by delivery companies that are not making sales of tangible personal property sales subject to the tax. For example, a vendor in Columbus sells property to a consumer in Cleveland and pays a delivery company to transport the property to the consumer. The charge from the delivery company to the vendor is not a sale that is subject to Ohio tax. However, if the vendor passes that charge through to the consumer as a "delivery charge," that charge is part of the price of the sale from the vendor to the consumer. If the sale is taxable, tax must be collected from the consumer on the delivery charge.

Use Tax

H.B. 95 amended the general use tax definition of "price" in R.C. 5741.01(G)(1) to read as follows:

"Price," except as provided in divisions (G) (2) to (6) of this section, has the same meaning as in division (H)(1) of section 5739.01 of the Revised Code.

Therefore, an out-of-state vendor making a sale to an Ohio consumer should use the definition of "price" found in R.C. 5739.01(H)(1) discussed above.

The provision for determining the price of a sale of a new motor vehicle or a watercraft provided in R.C. 5741.01(G)(2) is unchanged.

The price provisions in the Streamlined Agreement deal with the price on which a seller is to charge tax to a consumer. Ohio law has several provisions in the use tax definition of price that deal with tax to be paid by a consumer on items that were not subject to Ohio tax at the time of sale. These provisions are found in R.C. 5741.01(G)(3), (4) and (5). These provisions are unchanged.

Previous R.C. 5741.01(G)(6) dealt with the acceleration of tax on certain lease transactions. Those statutory provisions have not been changed, but have been moved to R.C. 5741.02(A)(2).

H.B. 95 did add a new R.C. 5741.01(G)(6), which provides:

If a consumer produces tangible personal property for sale and removes that property from inventory for the consumer's own use, the price is the produced cost of that tangible personal property.

This does not represent a change in Ohio law with regard to the use of property removed from sale inventory.

If you have questions regarding any matter covered in this release, please call 1-888-405-4039 (Ohio Relay Service for the Speech or Hearing Impaired: 1-800-750-0750), or e-mail us through our web site at http://tax.ohio.gov/ .