Information Release

ST 2008-02 - Motor Vehicles - Dealer Transfers for No Consideration, and Sales or Gifts to Nonprofit Organizations –  Issued March 2008

The purpose of this information release is to communicate the Department’s policy with regard to sales or use tax when a motor vehicle dealer transfers a motor vehicle from inventory to a person or organization for no consideration, or makes a sale to a nonprofit organization.

Transfers for No Consideration

A motor vehicle dealer may give a motor vehicle for no consideration to another person or organization. No consideration means the dealer receives nothing of value (e.g. no money or property, tangible or intangible) for the transfer of the vehicle. When the title is transferred for no consideration, no sales or use tax is required to be paid to the Clerk of Courts.

However, a dealer that transfers a vehicle for no consideration will owe use tax on the value of the vehicle in accordance with Ohio Revised Code section (“R.C.”) 5741.01(C), which provides the definition of the term “Use”:

“Use” means and includes the exercise of any right or power incidental to the ownership of the thing used. A thing is also “used” in this state if its consumer gives or otherwise distributes it, without charge, to recipients in this state.

The tax due is computed by using the price paid for the vehicle when the vehicle was acquired by the dealer. If the dealer accepted the vehicle in trade, the amount the dealer allowed as a trade-in will be the amount on which to compute the tax.

Example 1: A new car dealership donates a new vehicle to the owner of a local mall. The mall owner is conducting a raffle; the vehicle is subsequently going to the raffle winner. The dealer should convert the Manufacturer’s Certificate of Origin to a title in the name of the mall owner. The dealer should state on the application for title a purchase price of $0.00. The mall owner will transfer title to the vehicle to the raffle winner, also with a purchase price of $0.00. The raffle winner owes no sales tax on the transfer of title. The dealer owes use tax on the price the dealer paid for the vehicle from the manufacturer. No tax will be paid to the Clerk of Courts in either of these transfers. See below on how the dealer will pay the use tax.

Example 2: A used car dealership gives a used vehicle to a loyal employee. The dealer should transfer the title to the name of the employee. The dealer should state on the back of the title a purchase price of $0.00. The employee owes no sales tax on the transfer of title. When the dealer originally obtained and titled the vehicle, no tax was paid as the dealer claimed an exemption from the tax for resale. Since the dealer did not resell the vehicle, the dealer loses the claim of exemption and owes use tax on the price the dealer paid to acquire the vehicle, or the amount the dealer allowed when taking the vehicle in on trade.

The dealer should pay use tax on an Ohio Consumer’s Use tax account. An application for the account can be found in the Tax Forms section of the Ohio Department of Taxation’s Web site, tax.ohio.gov. An account can also be obtained through the Ohio Business Gateway, obg.ohio.gov. If no consumers account is held by the dealer, the tax should be paid by voluntary payment on form VP USE, Ohio Use Tax Voluntary Payment Form, also available at tax.ohio.gov.

Gifts to a Qualifying Nonprofit Organization or an Ohio Government Agency

The use tax would not be due when the dealer donates a vehicle to a qualifying organization. R.C. 5741.02(C)(9) provides that use tax is not due for:

Tangible personal property held for sale by a person but not for that person’s own use and donated by that person, without charge or other compensation, to either of the following:

(a) A nonprofit organization operated exclusively for charitable purposes in this state, no part of the net income of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which consists of carrying on propaganda or otherwise attempting to influence legislation; or

(b) This state or any political subdivision of this state, but only if donated for exclusively public purposes.

Example 3: A new car dealership donates a new vehicle to a local church. The church is conducting a raffle; the vehicle is subsequently going to the raffle winner. The dealer should convert the Manufacturer’s Certificate of Origin to a title in the name of the church. The dealer should state on the application for title a purchase price of $0.00. The church will transfer title to the vehicle to the raffle winner, also with a purchase price of $0.00. The raffle winner owes no sales tax on the transfer of title. The dealer does not owe use tax on the price the dealer paid for the vehicle from the manufacturer. No tax will be paid to the Clerk of Courts in either of these transfers.

Example 4: A used car dealership donates a used vehicle to the city for use by a city employee for city business. The dealer should transfer the title to the name of the city. The dealer should state on the back of the title a purchase price of $0.00. The city owes no sales tax on the transfer of title. The dealer does not owe use tax on the price the dealer paid for the vehicle, or the amount the dealer allowed when taking the vehicle in on trade.

      Sales to Nonprofit Organizations

A dealer may sell a vehicle to a nonprofit organization. The vehicle may be kept by the organization, or transferred by the organization to someone by means of a raffle, charitable gift, or other promotion.

Not all nonprofit organizations are exempt from the sales tax on purchases made by the organization. To be exempt, the nonprofit organization must be operated exclusively for charitable purposes in this state.(1)

If a vehicle is sold to a nonprofit organization that is operated exclusively for charitable purposes in this state, the Bureau of Motor Vehicles requires the dealer to obtain a title in the name of the organization. The title can be transferred to the organization without collection of the tax. The Clerk of Courts will use the exemption code “NP”.

When a vehicle is sold to a nonprofit organization that is not operated exclusively for charitable purposes in this state, such as a fraternal organization or a trade association, the Bureau of Motor Vehicles requires the dealer to obtain a title in the name of the organization. If no other exemption applies, the tax must be collected by the dealer on the selling price of the vehicle and paid to the Clerk of Courts when the title is obtained.

Example 5: A new car dealership sells a new car to a nonprofit fraternal organization that is not operated exclusively for charitable purposes within the meaning of R.C. 5739.02(B)(12). The organization is conducting a raffle; the vehicle is subsequently going to the raffle winner. The dealer must convert the Manufacturer’s Certificate of Origin to a title in the name of the organization. The dealer will collect the sales tax based on the selling price of the vehicle and the rate in the county of residence of the organization. The tax will be paid to the Clerk of Courts when title is obtained. The organization will transfer ownership of the vehicle to the raffle winner, with a purchase price of $0.00. The raffle winner owes no sales tax on the transfer of title. The dealer does not owe use tax on the price the dealer paid for the vehicle from the manufacturer.

If the sale is to a nonprofit organization that is operated exclusively for charitable purposes as defined in R.C. 5739.02(B)(12), the organization must provide the dealer with a fully completed exemption certificate. The dealer would still obtain a title in the organization’s name, but no sales tax would be collected. The title can be transferred to the organization without collection of the tax. The Clerk of Courts will use the exemption code “NP”.

Example 6: A used car dealership sells a used car to a nonprofit, charitable organization. The organization will donate the vehicle to a family in need. The dealer is required to obtain a title in the organization’s name, but no sales tax would be collected. The title can be transferred to the organization without collection of the tax. The Clerk of Courts will use the exemption code “NP”. The organization will transfer ownership of the vehicle to the family, with a purchase price of $0.00. The family owes no sales tax on the transfer of title. The dealer does not owe use tax on the price the dealer paid for the vehicle, or the amount the dealer allowed when taking the vehicle in on trade.

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

FOOTNOTE:

(1) Sales of tangible personal property or services to churches, to organizations exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986, and to any other nonprofit organizations operated exclusively for charitable purposes in this state, no part of the net income of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which consists of carrying on propaganda or otherwise attempting to influence legislation; sales to offices administering one or more homes for the aged or one or more hospital facilities exempt under section 140.08 of the Revised Code; and sales to organizations described in division (D) of section 5709.12 of the Revised Code.

"Charitable purposes" means the relief of poverty; the improvement of health through the alleviation of illness, disease, or injury; the operation of an organization exclusively for the provision of professional, laundry, printing, and purchasing services to hospitals or charitable institutions; the operation of a home for the aged, as defined in section 5701.13 of the Revised Code; the operation of a radio or television broadcasting station that is licensed by the federal communications commission as a noncommercial educational radio or television station; the operation of a nonprofit animal adoption service or a county humane society; the promotion of education by an institution of learning that maintains a faculty of qualified instructors, teaches regular continuous courses of study, and confers a recognized diploma upon completion of a specific curriculum; the operation of a parent-teacher association, booster group, or similar organization primarily engaged in the promotion and support of the curricular or extracurricular activities of a primary or secondary school; the operation of a community or area center in which presentations in music, dramatics, the arts, and related fields are made in order to foster public interest and education therein; the production of performances in music, dramatics, and the arts; or the promotion of education by an organization engaged in carrying on research in, or the dissemination of, scientific and technological knowledge and information primarily for the public.

Nothing in this division shall be deemed to exempt sales to any organization for use in the operation or carrying on of a trade or business, or sales to a home for the aged for use in the operation of independent living facilities as defined in division (A) of section 5709.12 of the Revised Code.