Could a Florida auto dealer deduct a trade-in when title went to a financing LLC under its inventory arrangement?

Plain-English summary

The dealer could subtract the trade-in allowance from the vehicle's taxable selling price even though the customer assigned the trade-in's title to a financing LLC. The Department treated the purchase and trade-in as one transaction under the proposed structure.

The result depended on the dealer accepting the vehicle at the time of sale and intending it for resale, the sales invoice identifying the trade-in, both the retailer and LLC being registered as motor-vehicle dealers for sales-tax purposes, and properly executed resale certificates covering transfers between them.

What this means for you

A financing or title-holding entity did not automatically destroy the trade-in deduction here. But the ruling relied on the complete dealer structure and documentation; a separate sale or later application of proceeds would not qualify as a trade-in under the cited rules.

Common questions

Q: Why did title going to the LLC not prevent the deduction? The registered dealer accepted the trade-in for resale as part of the same customer transaction, while the LLC served the described financing role.

Q: What had to appear on the invoice? The vehicle accepted in trade at the time of sale.

Q: Did dealer registration and resale paperwork matter? Yes. The Department expressly conditioned its conclusion on both entities' dealer registrations and properly executed resale certificates.

Citations and references

• Fla. Stat. §§ 212.02(15)-(16), 212.09(1)-(2) — sales price and trade-in credit
• Fla. Stat. §§ 319.21, 319.225 — dealer title reassignment
• Fla. Admin. Code rr. 12A-1.007(1), 12A-1.074(1)-(2) — vehicle and general trade-ins
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-060

Original ruling text

SUMMARY

QUESTION: Is a trade-in allowed for sales tax purposes on a
vehicle traded-in on the purchase of a new motor vehicle
sold by a dealer engaged in the business of selling motor
vehicles and the trade-in vehicle is accepted by that
dealer but the title of the trade-in vehicle is signed over
to a limited liability corporation by the purchaser for
purposes of financing arrangements.

ANSWER - Based on Facts Below: The trade-in will be allowed
as a reduction in the taxable selling price of the new
vehicle because the trade-in will be accepted and intended
for resale by a dealer registered with the department
engaged in the business of selling motor vehicles. The
sale and trade-in will be considered as one transaction
where the sales invoice describes the vehicle accepted in
trade at the time of sale. This determination is based on
the understanding that both entities are registered with
the department as engaged in the business of selling motor
vehicles for sales tax purposes and that properly executed
resale certificates are issued when transfers of the motor
vehicles occur between the two entities.

Oct 26, 1999

Re: TAA 99A-060
Sales Tax
Vehicle Purchase Financing/Trade-ins of Motor Vehicles
Sections 212.02 and 212.09, Florida Statutes
Rules 12A-1.007 and 12A-1.074, Florida Administrative Code
XXX (Taxpayer)
F.E.I. XX

Dear :

This is in response to your letter of January 20, 1999, in
which you request, on behalf of your client, Taxpayer, the

issuance of a Technical Assistance Advisement as to whether
trade-ins of motor vehicles occurring under the following set of
circumstances are considered one single transaction for the
purposes of reducing the taxable selling price of the motor
vehicle. Your letter of January 20, 1999, provides the
following information:

[Taxpayer] is engaged in the business of selling
automobiles at retail. The Company operates new and used
car superstores in eight states. It is considering a
financing program through which it would finance the
purchase of automobile inventory for sale to customers.
Such financing program would also be used to finance
purchases of vehicles taken in trade on sales of new(FN 1)
vehicles by [Taxpayer].

Financing Program

It is envisioned that the financing program would be
accomplished through the establishment of a limited
liability corporation, XXX (hereinafter "LLC") which would
be 99 percent owned by an unrelated third party and one
percent owned by [Taxpayer]. [Taxpayer] would enter into
an administration agreement with [LLC] to purchase
vehicles. [LLC] would obtain its funds through a loan
agreement with a lender to finance the purchase of
automobiles [Taxpayer] has identified.

While [LLC] would hold title to the inventory on the
[Taxpayer] lot, it would have no involvement in the
selection and actual procurement of the automobiles,
preparation of the automobiles for sale, or the performance
of any activities directly related to the automobiles
offered for sale by [Taxpayer]. Instead, [Taxpayer]'s
employees would conduct all purchasing and reconditioning
activities. All vehicles would be displayed at [Taxpayer]'s
business locations and sold by [Taxpayer] sales associates.
[LLC] would serve solely as a conduit for effectuating the
financing program -- playing essentially the same role as
traditional lending institutions might do with "floorplan"
loans.

In accordance with an arrangement designed to avoid various
duplicative and costly [Taxpayer] licensing requirements,
which otherwise would apply to [LLC], it is envisioned that
[LLC] would transfer to [Taxpayer] legal title to each
vehicle upon notice from [Taxpayer] that a customer wishes
to purchase the vehicle. Thus, when a vehicle is to be
sold to a purchaser, title would transfer simultaneously
from [LLC] to [Taxpayer] and from [Taxpayer] to the
purchaser. Immediately after the sale, [Taxpayer] would
remit directly to [LLC] the acquisition cost of the
vehicle. [Taxpayer] itself would retain any amounts
received in excess of the acquisition cost and interest,
i.e., any profits. Moreover, it is [Taxpayer] (and not
[LLC]) which would be responsible for the payment of
interest directly to the lenders which advanced the funds
to [LLC]. The customer would be totally unaffected by and
unaware of the behind-the-scenes structuring of the
transactions.

Agency Relationship

As noted above, [Taxpayer] would enter into an
administration agreement with [LLC]. Pursuant to such
agreement, [LLC] would engage [Taxpayer] to manage all
operational aspects of its business, including the purchase
and sale of vehicles in accordance with [Taxpayer]'s
existing policies and procedures, the reconditioning of all
vehicles, and displaying thereof at [Taxpayer]'s existing
business locations. [Taxpayer] employees would perform all
of the above activities. Similarly, [Taxpayer] employees
may staff [LLC] offices. In addition, under the
administrative agreement, [Taxpayer] would be responsible
for ensuring that all state "doing business" filings, tax
filings, UCC filings and all standard insurance policies
for a seller of vehicles are maintained as required by each
state in which [LLC] operates.

In return for its services, [Taxpayer] would retain, from
the proceeds of each vehicle sale, an administration fee
equal to the difference between the selling price of the

vehicle and the acquisition cost. From this administration
fee, [Taxpayer], acting as an agent for [LLC], would make
interest payments to the lenders advancing the funds to
[LLC].

Thus, although [Taxpayer] and [LLC] are two totally
separate and distinct entities, their businesses are so
interrelated for purposes of the purchases that they could
be viewed essentially as one business operation. [LLC]
serves merely as a provider of funds. [Taxpayer], acting
as an agent for [LLC], does virtually everything else for
[LLC].

Implications for Vehicle Trade-Ins

When a [Taxpayer] customer desires to trade in a vehicle
(hereinafter referred to as "trade-in") on the purchase of
a vehicle, title to the trade-in would transfer from the
customer to [LLC]. [LLC] would issue a voucher solely to
accompany the sales documentation as verification that a
vehicle was traded in. The customer would not receive a
copy or even be aware of such voucher. In turn, an instore credit would be issued by [Taxpayer], acting as an
agent for [LLC], for the value of the car(FN 2). The
purchase price of the new vehicle would be reduced by the
in-store credit, thereby reducing the amount subject to
sales tax. As with sales of vehicles in which customers do
not offer a trade-in, after completion of a sales
transaction, [Taxpayer] would remit directly to [LLC] the
acquisition cost of the vehicle. [Taxpayer] would retain
any amounts received in excess of the acquisition cost,
i.e., profits.

From such amounts, [Taxpayer] would be responsible for
payment of interest directly to the lenders that had
advanced the funds to [LLC].

The trade-in then would either be (i) reconditioned and
sold on the [Taxpayer] lot or (ii) sold at auction to other
automobile dealers. Upon sale of the trade-in, title would
transfer from [LLC] simultaneously to [Taxpayer] and then

to the purchaser. [Taxpayer] would then remit the trade-in
amount to [LLC] with interest due thereon paid directly to
[LLC's] lenders.

Additional information provided from your office on July
19, 1999, confirmed that when purchasing a vehicle from Taxpayer
and simultaneously trading in his or her vehicle, the customer
will receive a sales invoice from Taxpayer showing the purchase
price of the new vehicle less the amount allowed for the tradein.

Further, both of the entities (LLC and Taxpayer) will be
licensed motor vehicle dealers with the Department of Highway
Safety and Motor Vehicles.

Regulatory and Statutory Authority

Section 212.02(15)(a), F.S., states:

(15) "Sale" means and includes:
(a) Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration.

Section 212.02(16), F.S., states in part:

(16) "Sales price" means the total amount paid for tangible
personal property, including any services that are a part
of the sale, valued in money, whether paid in money or
otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction
therefrom on account of the cost of the property sold, the
cost of materials used, labor or service cost, interest
charged, losses, or any other expense whatsoever... Tradeins or discounts allowed and taken at the time of sale
shall not be included within the purview of this
subsection....

Section 212.09(1), (2), F.S. (1998 Supplement), states:

(1) Where used articles, accepted and intended for resale,
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.

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

Rule 12A-1.007(1)(a), (b)1., 2., F.A.C. states the
following:

(1)(a) The sale, including occasional or isolated sales,
the use, consumption, or storage for use in this state of
any aircraft, boat, mobile home, motor vehicle, or other
vehicle of a class or type required to be registered,
licensed, titled, or documented in this state or by the
United States Government is taxable on the full sales price
without any deductions for federal taxes, freight,
handling, delivery, commission, repossessions, advertising,
future free service, or any other expense or cost
whatsoever. Separately stated fees or charges as a
requisite to the titling, licensing, registration, transfer
of ownership, or recording of lien, or operation of any
automobile in this state, mandated by the state, its
subdivisions, or any state or licensed tag agency or
office, shall not be included in the sales price, and as a
result are not subject to tax.

(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.

2. A separate or independent sale of an aircraft, boat,
   mobile home, motor vehicle, or other vehicle of a class or
   type required to be registered, licensed, titled, or
   documented in this state or by the United States Government
   by either the buyer or seller of another aircraft, boat,
   mobile home, motor vehicle, or other vehicle is not a
   trade-in, even if the proceeds from the sale are
   immediately applied by the seller to a purchase of another
   aircraft, boat, mobile home, motor vehicle, or other
   vehicle.

Rule 12A-l .074(1)(2), F.A.C., states in part:

(1) Where used articles of tangible personal property,
accepted and intended for resale, are taken in trade, or a
series of trades, at the time of sale as a credit or part
payment on the sale of new articles of tangible personal
property, the tax levied by Part I of Chapter 212, F.S.
shall be paid on the sales price of the new article of
tangible personal property, less credit for the used
article of tangible personal property taken in trade. A
separate or independent sale of tangible personal property
is not a trade-in, even if the proceeds from the sale are
immediately applied by the seller to a purchase of new
articles of tangible personal property.

(2) Where used articles of tangible personal property,
accepted and intended for resale, are taken in trade, or a
series of trade, at the time of sale, as a credit or part
payment on the sale of used articles, the tax levied by
Part I of Chapter 212, F.S., shall be paid on the sales
price of the used article of tangible personal property,
less credit for the used articles of tangible personal
property taken in trade. A separate or independent sale of
tangible personal property is not a trade-in, even if the
proceeds from the sale are immediately applied by the

seller to a purchase of new articles of tangible personal
property....

Discussion/Conclusion

The question under review is whether a trade-in allowance
for sales tax purposes will be given for a vehicle traded-in on
the purchase of a new motor vehicle sold by Taxpayer and the
trade-in vehicle is accepted by Taxpayer but the title of the
trade-in vehicle is signed over to LLC by the purchaser.

Section 319.21, F.S., does not require that a licensed
motor vehicle dealer be issued a certificate of title in the
dealer's name for a vehicle which is transferred to a dealer for
resale purposes. The dealer reassigns the certificate of title
by completing the reassignment form on the reverse side of the
title or completing a separate dealer reassignment form issued
by the Department of Highway Safety and Motor Vehicles (Section
319.225, F.S.).

The department, by its promulgation of Rule 12A-1.074,
F.A.C., has interpreted the legislative intent of the breadth of
the trade-in exclusion to be confined to situations where the
trade-in occurs at the time of sale and further to situations
where the trade-in and purchase constitute a single transaction.
Moreover, it has historically been the department's policy that
the invoice for the purchase must identify the item of tangible
personal property accepted in trade at the time of sale.

In the circumstances outlined above, the customer is
trading in a vehicle on the purchase of a new vehicle. The
trade-in will be accepted and intended for resale by a dealer
registered with the department and engaged in the business of
selling motor vehicles. Therefore, the department will recognize
the sale and trade-in as one transaction where the sales invoice
describes the vehicle accepted in trade at the time of sale.
The foregoing determination is based on the understanding that
both entities are registered with the department as engaged in
the business of selling motor vehicles for sales tax purposes
and that properly executed resale certificates are issued when
transfers of the motor vehicles occur between the two entities.

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, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Bonnie Everton
Senior Tax Specialist

/e
Cont. #36382

FOOTNOTE 1: It is noteworthy that [Taxpayer] typically does not
sell new vehicles at all of its lots, but instead sells
"previously owned" or "used" vehicles. However, the term "new"
will be used herein to more readily distinguish between the
various vehicles referenced herein.

FOOTNOTE 2: Only in those instances in which a trade-in vehicle
is offered at the time of sale of a new vehicle will an in-store

credit be issued by [Taxpayer].