Could a parent corporation reduce the taxable price of new aircraft or vessels using trade-ins owned by its subsidiary?

Subject

Trade-Ins of Aircraft and Vessels

Plain-English summary

A parent corporation could use aircraft or vessels owned by its subsidiary as trade-ins against the parent's purchase of new aircraft or vessels. The trade-in allowance reduced the taxable sales price as long as the new sale and the trade-in formed one transaction and the registered dealer accepted the used property for resale.

Florida also answered a broader question affirmatively: one person could provide a titled vehicle as the trade-in for another person's purchase and still qualify under the cited rule.

The ruling did not end the analysis for related corporations. The subsidiary proposed to contribute or donate its used aircraft and vessels without payment between the affiliates. The Department warned that the taxability of that transfer itself had to be considered. Because title would pass to the dealer on the parent's behalf, any unproven consideration would be presumed equal to fair market value; the ruling anticipated that the parent might record the transfer as a capital contribution.

What this means for you

The trade-in credit and the intercompany transfer are separate tax questions. Qualifying the dealer transaction for a net-price calculation does not automatically make the subsidiary-to-parent contribution nontaxable.

Transaction documents should connect the trade-in and new purchase as one deal and separately establish the legal and accounting basis, consideration, and value for any affiliate transfer.

Common questions

Q: Did the parent have to own the used aircraft or vessel before the trade-in? No. The Department allowed property owned by the affiliated subsidiary to be accepted in the parent's purchase transaction.

Q: What made the trade-in allowance available? The sale and trade-in had to be one transaction, and a registered dealer had to accept the used property for resale.

Q: Did the ruling say the subsidiary's contribution was tax-free? No. It expressly raised that transfer as a separate issue that had to be considered.

Q: How would Florida value the affiliate transfer without proof of consideration? The advisement said consideration would be presumed to equal the aircraft's or vessel's fair market value.

Citations and references

• Fla. Stat. § 212.09(1) — tax on the new article's price after credit for a used article taken in trade
• Fla. Admin. Code r. 12A-1.007(1)(b)1. — same-transaction trade-in allowance for aircraft, boats, motor vehicles, and similar titled property accepted for resale
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98A-040

Original ruling text

SUMMARY

The Department agreed that a parent corporation could
trade-in an aircraft or vessel owned by a subsidiary, if
the sale and trade-in are one transaction and reduce the
sales price by the credit given for sales tax purposes.
Consideration must be given to the taxability of the act of
donating or contributing of the used aircraft or vessel to
the parent corporation by the subsidiary for the purpose of
using the aircraft as a trade-in. If title to the used
aircraft is transferred to the dealer on behalf of the
parent corporation, absent proof of actual consideration
for the transfer, the consideration would be presumed to
equal the fair market value of the aircraft or vessel. It
is likely that the transfer of the aircraft would be
recorded as a contribution of capital on the books and
records of the parent corporation.

May 27, 1998

Re: Technical Assistance Advisement 98(A)-040
Sales and Use Tax - Trade-Ins of Aircraft and Vessels
Section: 212.09, F.S.
Rule: 12A-1.007, F.A.C.

Dear :

This is a response styled a Technical Assistance Advisement, to
your letter dated February 10, 1998, concerning the above
referenced matter as applied to XXX ("Company"). Your
correspondence has been carefully examined and the Department
finds it to be in compliance with the criteria set forth in
Chapter 12-11, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of s. 213.22,
F.S.

STATED FACTS

You provide the following facts:

Company is the parent corporation of XXX ("Subsidiary").
Subsidiary carries on its books and is the owner of certain
aircraft and vessels on which sales tax was previously
paid. Company has determined that it is in its best
interest to have all aircraft and vessels owned and
maintained by it on its books and not on the books of
Subsidiary. It is proposed that Company will acquire new
aircraft and vessels, and the aircraft and vessels owned by
Subsidiary would be traded in at the time of the
acquisition by Company, in order to reduce the amount paid
by Company for the new aircraft and vessels. No
consideration is paid between the two related corporations.

REQUESTED ADVISEMENT

You ask, where an aircraft or vessel is traded in by one related
entity on the acquisition of a new aircraft or vessel by its
affiliated entity, will this be treated as a trade-in, reducing
the sales price by the credit given for sales tax purposes?

Is it the Department's position that a person may provide a
motor vehicle as a trade in against another person's acquisition
of a motor vehicle and qualify for the trade-in credit provided
by Rule 12A-1.007, F.A.C.?

LAW AND ANALYSIS

Section 212.09(1), F.S., provides the following regarding used
articles taken in trade:

(1) Where used articles are taken in trade, or a series of
trades, as a credit or part payment on the sale of new
articles, the tax levied by this chapter shall be paid on
the sales price of the new article, less the credit for the
used article taken in trade.

Rule 12A-1.007(1)(b)1., F.A.C., states:

(1)(b)1. Any trade-in allowance for tangible personal

property, if the sale and trade-in are one transaction,
accepted by any person registered with the Department of
Revenue as a dealer to engage in the business of selling
aircraft, boats, mobile homes, motor vehicles, or other
vehicles of a class or type required to be registered,
licensed, titled, or documented in this state or by the
United States Government and intended for resale by such
dealer shall be excluded (deducted) from the gross sales
price, and only the net sales price shall be subject to
tax.

RESPONSE

The Department answers both questions raised in the affirmative.
Company can trade a used aircraft or vessel by its affiliated
entity, if the sale and trade-in are one transaction, and reduce
the sales price by the credit given for sales tax purposes. The
question you have not asked, which must be considered is whether
the act of donating or contributing the used aircraft to the
Company by Subsidiary for the purpose of using the aircraft as a
trade-in is taxable? Title to the used aircraft is transferred
in the above described scenerio to the dealer on behalf of
Company. Absent proof of the actual consideration for the
transfer, the consideration would be presumed to equal the fair
market value of the aircraft. It is likely that the transfer of
the aircraft would be recorded as a contribution to capital on
the books and records of Company.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request are
public records under Chapter 119, F.S., which are subject to

disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Janet Cumbie
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850)922-4847

JCC\
Control No: 32874