Revenue Holds that RVs and Travel Trailers are "Like Kind" Products for Like Kind Exchange Deduction

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Taxpayer is an Indiana dealer selling recreational vehicles("RVs"), travel trailers, and parts. Pursuant to an audit, theIndiana Department of Revenue ("Department") determined that, during2009, 2010, and 2011 tax years, Taxpayer failed to collect and remit the grossretail tax ("sales tax") on several of Taxpayer's sales whereTaxpayer used a discount when a customer traded in a travel trailer to purchasean RV, or when a customer traded in an RV to purchase a travel trailer. TheDepartment's audit assessed sales tax, interest, and penalty. …
The only issue that Taxpayer protested concerns RV sales forwhich Taxpayer's customers traded in travel trailers, and travel trailer salesfor which the Taxpayer's customers traded in RVs ("trade-ins"). Forthese sales, Taxpayer deducted the trade-in amount ("trade-inallowance") from the sales price of the RVs or travel trailers they soldin the trade-in, depending on the transaction. Taxpayer thus claimed that itwas entitled to the "trade-in allowance" because the trade-ins were"like kind" exchanges, and not subject to sales tax. The Department'saudit disagreed that travel trailers and RVs were "like kind"vehicles, and assessed Taxpayer sales tax based on the full amount of the salesprice. …
IC § 6-2.5-1-5(b) provides that "'[g]ross retailincome' does not include that part of the gross receipts attributable to... (1)the value of any tangible personal property received in a like kind exchange inthe retail transaction, if the value of the property given in exchange isseparately stated on the invoice, bill of sale, or similar document given tothe purchaser." IC § 6-2.5-1-6 states:
(a) "Like kind exchange" means the reciprocalexchange of personal property between two (2) persons, when:(1) The property exchanged is of the same kind or character,regardless of grade or quality; and(2) The persons exchanging the property both own theproperty prior to the exchange.(b) A "like kind exchange" may be a part of atransaction involving additional consideration other than the exchangedproperty.(c) Notwithstanding subsection (a), a "like kindexchange" does not occur when:(1) The transaction involves more than two (2) persons; or(2) One (1) party to the transaction, through agreement ornegotiation with the second party, acquires personal property for the primarypurpose of exchanging that property for like kind property held by the secondparty.
At the time that the sales occurred, Sales Tax InformationBulletin 28S (February 2008, 200801130 Ind. Reg. 045080050NRA) and Sales TaxInformation Bulletin 28S (December 2009, 20100127 Ind. Reg. 045100029NRA)provided that:
The deduction for a trade-in allowance applies only to"like-kind exchanges" in which the motor vehicle or trailer to betraded in is owned and titled in the name of the customer. A like-kind exchangemeans a motor vehicle traded for another motor vehicle or a trailer traded foranother trailer. A trade-in of a motor vehicle for a trailer is not a "like-kindexchange" and is not deductible in the calculation of the amount of thetaxable gross retail income received by the dealer. Non-like-kind exchanges aremerely another form of a payment to the dealer and do not reduce the dealer'sgross retail income.
Because of this, the audit found that the trade-ins wherepurchasers traded in their RVs upon purchasing Taxpayer's travel trailers, orwhere purchasers traded in their travel trailers upon purchasing Taxpayer'sRVs, were not "like-kind exchanges."
However, Sales Tax Information Bulletin 28S was recentlyupdated, and while the statement above is still included, an exception to theabove statement was added that is pertinent to the case at hand. Sales TaxInformation Bulletin 28S (April 2012, 20120530 Ind. Reg. 045120259NRA) nowprovides that:
Note: one exception to the general rule that a motor vehicletraded in for a trailer does not constitute a "like-kind exchange" iswhen a motorized recreational vehicle is traded in for a non-motorizedrecreational vehicle. In such a case, the Department considers the motorizedand non-motorized recreational vehicles to be like-kind.
Because this update to Sales Tax Information Bulletin 28Sclarifies what was already Departmental policy, for those trade-ins wherepurchasers traded in their RVs upon purchasing Taxpayer's travel trailers, orwhere purchasers traded in their travel trailers upon purchasing Taxpayer'sRVs, these would be considered "like-kind exchanges," and thereforewould be exempt from sales tax.
It should also be noted that, in some instances, Taxpayeralso accepted a boat as a trade-in for a motor home or a travel trailer. A boatis a watercraft. A motor home is a motorized recreational vehicle. A traveltrailer is a non-motorized recreational vehicle. Boats and motor homes or boatsand travel trailers are not items of the same kind. Sales Tax InformationBulletin 28WC (August 2008, 20081001 Ind. Reg. 045080728NRA) provides that"only a watercraft may be traded for another watercraft" and that"a vehicle taken in trade for a watercraft is not a like-kind trade, perstatute, and thus does not reduce the taxable selling price." Thereforethese transactions do not qualify for the like kind exchange treatment.Taxpayer's protest as it pertains to these assessments is denied.
Upon a supplemental audit, the Department will recalculatethe tax due.
http://www.in.gov/legislative/iac/20121031-IR-045120569NRA.xml.html