Information Release

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ST 2007-04 - Sales and Use Tax: Sales of Motor Vehicles to Nonresidents of Ohio –  Issued August 2007

The purpose of this information release is to communicate a change in the Revised Code and the Department’s policy on sales of motor vehicles to nonresidents of Ohio.

Amended Substitute House Bill 119, the State Budget Bill, changed the application of Ohio sales tax on the purchase of motor vehicles by nonresidents. This change applies only to sales of motor vehicles to nonresidents on and after August 1, 2007. Leases to nonresidents continue to not be subject to the tax.

The new statute, RC 5739.029, is provided at the end of this release.

To What Transactions does this Provision Apply?

Under this new provision, Ohio motor vehicle dealers must collect tax from nonresidents of Ohio where the state in which the motor vehicle will be titled or registered imposes its sales, use, or similar tax to Ohio residents and allows a credit against such tax for Ohio sales or use tax paid. Most residents of other states will continue to be exempt from Ohio sales and use tax on the purchase of motor vehicles. Specifically, Ohio tax will not apply to transactions where the vehicle will be titled or registered in another state that:

1. Provides a nonresident motor vehicle exemption from their sales and use tax law under which Ohio residents can purchase a vehicle and not be required to pay sales or use tax,

2. Does not give credit against their sales, use or similar tax for Ohio sales and use tax paid, or

3. Does not have a sales, use or similar tax that applies to sales of motor vehicles.

Currently, there are only eight states that do not fall in at least one of the above categories.  Those states are Arizona, California, Florida, Indiana, Massachusetts, Michigan, South Carolina and Washington. So this change to Ohio tax law will only affect sales of motor vehicles by Ohio dealers to nonresidents of Ohio that will remove the vehicle for titling, registration or use in one of those states.

The exclusions from the tax that are listed above only apply to nonresidents of Ohio that remove the vehicles from Ohio to be titled, registered or used in another state, which is defined to include districts, territories, commonwealths and other possessions of the United States, such as the District of Columbia, U. S. Virgin Islands and Puerto Rico. However, the tax provisions of R.C. 5739.029 apply to all sales of motor vehicles by an Ohio motor vehicle dealer to a nonresident of Ohio that removes the vehicle from Ohio to be titled, registered or used outside Ohio, whether in another state or in a foreign nation.

How Is the Tax Calculated?

The amount of tax to charge and collect on sales of motor vehicles to nonresidents of Ohio that will remove the vehicle purchased to any of the eight states mentioned above to be titled, registered or used is the lesser of the amount of tax due in Ohio, versus the amount of tax the nonresident would pay in the state of titling, registration or use, after taking certain factors into account. Trade-in allowance for reducing price before computing the sales tax is permitted on the sale of new or used vehicles to nonresident purchasers from the specified states if allowed by the state to which the vehicle will be removed.  Rebates or other cash back offers paid by someone other than a dealer do not reduce the tax base, except in South Carolina.

To determine the lowest tax, make the following computations:

  • The Ohio price of the vehicle should be computed using Ohio laws as you would for any sale to an Ohio resident, taking into account the trade-in deduction if the sale is of a new vehicle. The tax rate to apply to the Ohio price is 6.0%
  • Calculate the other state price (taking into account the above adjustments, such as a trade-in allowance as permitted by the other state) and apply the tax rate of the other state as listed in the chart below. (Please note that the chart below is subject to change.  Accordingly, you are advised to make sure you stay current with any updates to this release. For automatic notifications by e-mail, please sign up for OHTAX-Alert at: http://tax.ohio.gov/ohiotaxalert/isUserInfo.asp.)
  • Collect the tax from the customer using the lesser of the two amounts. 

The following is the list of the states, applicable tax rate, and the adjustments that can be made to determine the correct amount of tax to collect:             

State

Tax Rate

Trade-In Allowance

Tax Cap

Arizona

5.60%

Yes –New and Used

 

California

7.25%

No

 

Florida

6.00%

Yes- New and Used

 

Indiana

7.00%

Yes-New and Used

 

Massachusetts

5.00%

Yes-New and Used

 

Michigan

6.00%

No

 

South Carolina

5.00%

Yes-New and Used

$300.00

Washington

6.50%

Yes-New and Used

 

For sales to nonresidents of Ohio that remove the vehicle to South Carolina for titling, registration or use, tax should only be collected up to the maximum due in that state, $300.

Sales to nonresidents of Ohio that are to be removed to any other state not listed above for titling, registration or use are not subject to Ohio tax, provided the proper affidavit for nonresident sales is completed by the purchaser and tendered to the Clerk of Courts when application for title is made.

For sales to nonresidents of Ohio that will remove the vehicle purchased to any foreign country for titling, registration or use, the Ohio tax should be collected at six percent (6%) of the price of the vehicle. (This is because there is not a tax from another ­state to compare to the Ohio tax and take the lesser of.)

As with any purchase of a motor vehicle by a nonresident, the customer must complete the affidavit regarding a sale to an out-of-state resident. This form, STEC-NR, can be found in the Tax Forms section on the Department of Taxation’s Web site at tax.ohio.gov. On the top of the affidavit, the date of sale must be entered. The date of sale is when the customer pays for the vehicle, or takes delivery, whichever comes first, which should occur prior to the title being issued. The amount of tax collected on the sale must be stated on the affidavit, as well as on the application for title. If a sale of a used vehicle with a trade-in, the amount of the trade-in should be written on the nonresident affidavit. These documents should be tendered to the Clerk of Courts as is customary practice.

A sale to a nonresident of Ohio that will remove the vehicle purchased to one of the eight states where tax is to be collected could still qualify for exemption from the tax if a valid Ohio exemption exists. For example, a trucking company from Michigan could claim an exemption for personal property used in highway transportation for hire if they are carrying goods belonging to others and are the holder of a permit or certificate issued by the United States authorizing the holder to engage in transportation of the personal property belonging to others for consideration over or on highways. In this case, the purchaser would issue the Sales and Use Tax Certificate of Exemption Regarding Sale of a Motor Vehicle, Off-Highway Motorcycle, or All-Purpose Vehicle , in lieu of the nonresident affidavit. This form, STEC MV, can be found in the Tax Forms section of the Ohio Department of Taxation’s website at tax.ohio.gov.  Exemptions allowed in other states but not in Ohio do not qualify for exemption from the Ohio tax.

Examples

 

Example 1: An Indiana resident purchases a new vehicle from an Ohio dealer. There is no trade-in involved in the transaction.


  Ohio Calculation   Indiana Calculation
Purchase Price $23,000.00   $23,000.00
Tax Rate 6.00%   7.00%
Calculated Tax $1,380.00   $1,610.00
Tax to be Remitted in Ohio   $1,380.00  

 

Example 2: A Florida resident purchases a new vehicle from an Ohio dealer. The customer has a trade-in.

  Ohio Calculation   Florida Calculation
Purchase Price $25,000.00   $25,000.00
Trade-In Allowance $7,500.00   $7,500.00
Tax Base $17,500.00   $17,500.00
Tax Rate 6.00%   6.00%
Calculated Tax $1,050.00   $1,050.00
Tax to be Remitted in Ohio   $1,050.00  

 

Example 3: A Michigan resident purchases a new vehicle from an Ohio dealer. The customer has a trade-in. Michigan does not allow a trade-in allowance.


  Ohio Calculation   Michigan Calculation
Purchase Price $28,000.00   $28,000.00
Trade-In Allowance $7,500.00   $7,500.00
Tax Base $20,500.00   $28,000.00
Tax Rate 6.00%   6.00%
Calculated Tax $1,230.00   $1,680.00
Tax to be Remitted in Ohio   $1,230.00  

 

Example 4: A California resident purchases a new vehicle from an Ohio dealer. There is no trade-in involved in the transaction.


  Ohio Calculation   California Calculation
Purchase Price $33,000.00   $33,000.00
Tax Rate 6.00%   7.25%
Calculated Tax $1,980.00   $2,392.50
Tax to be Remitted in Ohio   $1,980.00  

 

Note on Examples 3 and 4. In these examples, the dealer will report and pay to Ohio a tax amount that will be less than due in the resident state. Upon return to the home state, the purchaser will owe additional tax. The Ohio dealer at the request of the customer may collect the entire amount of tax due for the transaction. When completing the application for title and the nonresident affidavit, the dealer should list only the tax collected and paid to Ohio. The bill of sale should list the tax amounts for the two states respectively. The customer will receive credit only for the amount of tax paid to Ohio.

 

Example 5: An Indiana resident purchases a used vehicle from an Ohio dealer. The customer has a trade-in.


  Ohio Calculation   Indiana Calculation
Purchase Price $17,000.00   $17,000.00
Trade-In-Allowance $3,500.00   $3,500.00
Tax Base $17,000.00   $13,500.00
Tax Rate 6.00%   7.00%
Calculated Tax $1,020.00   $945.00
Tax to be Remitted in Ohio   $945.00  

 

Example 6: A South Carolina resident purchases a new vehicle from an Ohio dealer. The customer has a trade-in. South Carolina has a $300.00 cap on the amount of tax to collect on the sale of a vehicle.

  Ohio Calculation   South Carolina
Purchase Price $24,000.00   $24,000.00
Trade-In-Allowance $4,500.00   $4,500.00
Tax Base $19,500.00   $19,500.00
Tax Rate 6.00%   5.00%
Calculated Tax $1,170.00   $975.00
Tax to be Remitted in Ohio   $300.00  

 

                                       How Is the Tax Reported and Remitted to the State?

For Sales prior to July 1, 2008:

 

For sales made on or after August 1, 2007 through June 30, 2008, dealers will remit tax collected on sales to nonresidents directly to the State of Ohio using the Ohio Business Gateway (OBG), instead of paying the tax to the Ohio Clerks of Courts.

To use the OBG, a dealer can go to obg.ohio.gov and register its business if it has not done so already. The OBG can also be used to file regular sales tax returns, as well as employer withholding and commercial activities tax returns and payments. In the registration process, the dealer will be asked for the FEIN or SSN, vendor’s license number, dealer permit number, address, contact person, email address and phone number. Dealers that file sales tax returns on a master number (89-X3XXXX) will use the master number as the vendor’s license number and report the tax by each dealer permit number.

Once registered with the OBG, the dealer can select the application to pay the sales tax on sales to the specific nonresidents. The tax is to be paid monthly, by the 10th of the month following the close of each month (it cannot be filed with the regular sales tax return on the 23rd). So the tax due for nonresident sales for the month of August 2007 must be paid by September 10th. The dealer should only pay the tax once for all nonresident motor vehicle sales made during any month, not when each sale occurs. Dealers that file their sales tax return, form UST-1, on a semiannual basis, must still report and pay the nonresident tax monthly. If the tax is timely filed and paid, the vendor discount (0.75%) will be applied.

The dealer will not have to list each transaction separately. However, the dealer will have to list, by state, the number of transactions, the total purchase price of all sales, and the total tax collected. The OBG system allows for payment by ACH Debit only. 

If the tax is not paid timely, a late payment fee of $100.00 will be added.

When filing the sales tax return, form UST-1, sales to all nonresidents should be included.  Those sales where tax is collected will be reported on lines 1, 3, and 4, as are all other taxable motor vehicle sales. Sales to residents of states where the tax is not collected are reported on lines 1 and 2 only. 

 

For Sales made on or after July 1, 2008:

For sales of motor vehicles to nonresidents made on or after July 1, 2008, the dealer will remit the tax to the Clerk of Courts at the time the nonresident title is applied for.  At the present time, the Automated Title Processing System (ATPS) is being modified to accommodate this process.  Further information will be forthcoming.

What Impact Does This Have on Motor Vehicle Sales to Ohio Residents?

The new provisions (i.e., R.C. 5739.029) do not apply to any motor vehicle sale to an Ohio resident. 

If an Ohio resident purchases a motor vehicle from an Ohio motor vehicle dealer and takes possession of the vehicle in Ohio, the dealer must obtain title for the vehicle in the manner it always has.  The Ohio tax will be paid based upon the purchaser’s county of residence. The purchaser’s subsequent removal of the vehicle from Ohio does not affect the Ohio tax liability.

If an Ohio resident purchases a motor vehicle from an Ohio dealer and instructs the dealer to deliver the vehicle to a location outside Ohio where the vehicle will be subsequently titled, registered or used, the dealer should complete a notarized Statement Regarding Sale of a Motor Vehicle, Off-Highway Motorcycle, or All-Purpose Vehicle in Interstate Commerce, and present it to the dealer. The dealer may then obtain an Ohio title without collection or payment of the Ohio tax, as the sale will be a sale in interstate commerce. The required statement can be completed on form STEC IC, which is available on the Ohio Department of Taxation website, tax.ohio.gov, under the “Tax Forms” tab.

Questions?

If you have any questions regarding this matter, you should direct your questions to one of our taxpayer service centers or call 1-888-405-4039.

OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750

R.C. 5739.029

(A) Notwithstanding sections 5739.02, 5739.021, 5739.023, 5739.026, 5741.02, 5741.021, 5741.022, and 5741.023 of the Revised Code, and except as otherwise provided in division (B) of this section, the tax due under this chapter on the sale of a motor vehicle required to be titled under Chapter 4505. of the Revised Code by a motor vehicle dealer to a consumer that is a nonresident of this state shall be the lesser of the amount of tax that would be due under this chapter and Chapter 5741. of the Revised Code if the total combined rate were six per cent, or the amount of tax that would be due, to the state in which the consumer titles or registers the motor vehicle or to which the consumer removes the vehicle for use.

(B) No tax is due under this section, any other section of this chapter, or Chapter 5741. of the Revised Code under any of the following circumstances:

(1)(a) The consumer intends to immediately remove the motor vehicle from this state for use outside this state;

(b) Upon removal of the motor vehicle from this state, the consumer intends to title or register the vehicle in another state if such titling or registration is required;

(c) The consumer executes an affidavit as required under division (C) of this section affirming the consumer's intentions under divisions (B)(1)(a) and (b) of this section; and

(d) The state in which the consumer titles or registers the motor vehicle or to which the consumer removes the vehicle for use provides an exemption under circumstances substantially similar to those described in division (B)(1) of this section.

(2) The state in which the consumer titles or registers the motor vehicle or to which the consumer removes the vehicle for use does not provide a credit against its sales or use tax or similar excise tax for sales or use tax paid to this state.

(3) The state in which the consumer titles or registers the motor vehicle or to which the consumer removes the vehicle for use does not impose a sales or use tax or similar excise tax on the ownership or use of motor vehicles.

(C) Any nonresident consumer that purchases a motor vehicle from a motor vehicle dealer in this state under the circumstances described in divisions (B)(1)(a) and (b) of this section shall execute an affidavit affirming the intentions described in those divisions. The affidavit shall be executed in triplicate and in the form specified by the tax commissioner. The affidavit shall be given to the motor vehicle dealer.

A motor vehicle dealer that accepts in good faith an affidavit presented under this division by a nonresident consumer may rely upon the representations made in the affidavit.

(D) A motor vehicle dealer making a sale subject to the tax under division (A) of this section shall collect the tax due unless the sale is subject to the exception under division (B) of this section or unless the sale is not otherwise subject to taxes levied under sections 5739.02, 5739.021, 5739.023, 5739.026, 5741.02, 5741.021, 5741.022, and 5741.023 of the Revised Code. In the case of a sale under the circumstances described in division (B)(1) of this section, the dealer shall retain one copy of the affidavit and file the original and the other copy with the clerk of the court of common pleas. If tax is due under division (A) of this section, the dealer shall remit the tax collected to the clerk at the time the dealer obtains the Ohio certificate of title in the name of the consumer as required under section 4505.06 of the Revised Code. The clerk shall forward the original affidavit to the tax commissioner in the manner prescribed by the commissioner.

Unless a sale is excepted from taxation under division (B) of this section, upon receipt of an application for certificate of title a clerk of the court of common pleas shall collect the sales tax due under division (A) of this section. The clerk shall remit the tax collected to the tax commissioner in the manner prescribed by the commissioner.

(E) If a motor vehicle is purchased by a corporation described in division (B)(6) of section 5739.01 of the Revised Code, the state of residence of the consumer for the purposes of this section is the state of residence of the corporation's principal shareholder.

(F) Any provision of this chapter or of Chapter 5741. of the Revised Code that is not inconsistent with this section applies to sales described in division (A) of this section.

(G) As used in this section:

(1) For the purposes of this section only, the sale or purchase of a motor vehicle does not include a lease or rental of a motor vehicle subject to division (A)(2) or (3) of section 5739.02 or division (A)(2) or (3) of section 5741.02 of the Revised Code;

(2) "State," except in reference to "this state," means any state, district, commonwealth, or territory of the United States.