When a customer buys several vehicles from a Tennessee car dealer and trades in several others in one transaction, is the sales tax figured on the total purchase price minus the total value of all the trade-ins?

Plain-English summary

Tennessee car dealers have a fleet customer that periodically trades in several vehicles and buys several replacement vehicles at the same time. They asked: in that single deal, do you figure the sales tax by adding up the price of all the cars bought and subtracting the total value of all the trade-ins? The Department said yes.

How Tennessee's trade-in rule works. Sales tax is imposed on the sales price of tangible personal property sold at retail (Tenn. Code Ann. § 67-6-202(a); "sales price" defined at § 67-6-102(81)(A)). The trade-in statute, § 67-6-510(a), then lets a buyer reduce that price by what the dealer credits for a used item taken in trade: "[w]here used articles are taken in trade, or in a series of trades, as a credit or part payment on the sale of new or used articles, the [tax] shall be paid on the net difference … the price of the new or used article sold, less the credit for the used article taken in trade." The Department's rule (Tenn. Comp. R. & Regs. 1320-5-1-.02(1)) says the same: tax is computed on the net difference between the sales price and the trade-in credit actually given.

Why multiple trade-ins are allowed. The statute doesn't spell out that a dealer may take more than one trade-in against a purchase — but it's written in the plural ("used articles are taken in trade," credited "on the sale of new or used articles") and even refers to a "series of trades." Courts can't read statutory language to be "inoperative, superfluous, void or insignificant" (Nissan North America, Inc. v. Haislip, quoting State v. Morrow). Disallowing multiple trade-ins in one transaction would gut that plural wording. So the dealer may accept several used vehicles as trade-ins against the purchase of one or more vehicles, and:

Sales price = (total price of all vehicles purchased in the single transaction) − (total trade-in value of all vehicles traded in that same transaction).

Two conditions. First, each trade-in must be of "like kind and character" to what's purchased and be flagged as a "trade-in" — by model and serial number where applicable — on the invoice (Rule 1320-5-1-.02(2)). Second, the dealer must document the single transaction so that every vehicle involved is clearly identified. Where the manufacturer or law requires separate paperwork per vehicle, the dealer can tie it together with a master sales agreement identifying each vehicle. Dealers must keep these records for three years (§ 67-6-523; general recordkeeping duty under § 67-1-113(a)).

What this means for you

Car and truck dealers (and fleet sellers)

When a customer buys multiple vehicles and trades in multiple vehicles in one transaction, you tax the net: total purchases minus total trade-in credits — you don't have to pair each trade-in to a single purchased vehicle. The savings to your customer are real, but they depend on getting the paperwork right: each trade-in must be like-kind, listed as a trade-in with model/serial number on the invoice, and all of it tied to one documented transaction (a master sales agreement is fine if per-vehicle records are also required).

Fleet operators and businesses cycling vehicles

If you periodically refresh a fleet by trading in old vehicles and buying replacements, structuring it as a single transaction lets the trade-in credits offset the full purchase price for sales-tax purposes — you pay tax only on the net difference. Keep the trade-ins like-kind and make sure the dealer's invoice/agreement captures every vehicle.

Accountants and tax professionals

The holding turns on the plural text of § 67-6-510(a) ("articles," "series of trades") and the anti-superfluity canon (Nissan/Morrow). The mechanics: aggregate purchase price less aggregate trade-in credit, per single transaction, with like-kind and invoice-identification conditions (Rule 1320-5-1-.02) and three-year recordkeeping (§ 67-6-523). Note this is the net-difference trade-in rule, distinct from the third-party-consideration/manufacturer-incentive analysis in the auto-dealer ruling LR 13-11.

Common questions

Q: If a customer trades in several cars and buys several, how is Tennessee sales tax figured?
A: On the net difference — add up the price of all vehicles purchased in the single transaction and subtract the total value of all trade-ins taken in that transaction.

Q: Can a dealer take more than one trade-in against a purchase?
A: Yes. Section 67-6-510(a) is written in the plural ("articles," "series of trades"), and the Department read it to allow multiple trade-ins; a contrary reading would render the plural language meaningless (Nissan North America v. Haislip).

Q: Are there conditions on the trade-ins?
A: Yes. Each must be of "like kind and character" to what's purchased and identified as a trade-in — by model and serial number where applicable — on the invoice (Rule 1320-5-1-.02(2)).

Q: What records does the dealer need?
A: Documentation clearly identifying every vehicle in the single transaction (a master sales agreement works), kept for three years (§ 67-6-523; § 67-1-113(a)).

Q: Can I rely on this letter ruling?
A: No. A Tennessee letter ruling binds the Department only as to the specific taxpayer and facts it was issued to, and it can be revoked or modified. Confirm your own situation with a tax professional.

Citations and references

Tennessee statutes (Tenn. Code Ann.; 2011 codification):

• § 67-6-510(a) (trade-in credit — tax on the net difference; plural "articles" / "series of trades")
• § 67-6-202(a) (sales tax on sales price of TPP sold at retail); § 67-6-102(81)(A) ("sales price")
• § 67-6-523(a), (b) (dealer recordkeeping, three-year retention); § 67-1-113(a) (general recordkeeping duty)

Tennessee rules:

• Tenn. Comp. R. & Regs. 1320-5-1-.02(1) (2000) (tax on net difference); 1320-5-1-.02(2) (2000) (like-kind and invoice-identification requirements)

Cases cited by the ruling:

• Nissan North America, Inc. v. Haislip, 155 S.W.3d 104 (Tenn. Ct. App. 2004); State v. Morrow, 75 S.W.3d 919 (Tenn. 2002) (a statute must not be read to render any part inoperative, superfluous, void, or insignificant)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/12-06.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
LETTER RULING # 12-06

WARNING
Letter rulings are binding on the Department only with respect to the individual taxpayer
being addressed in the ruling. This presentation of the ruling in a redacted form is
informational only. Rulings are made in response to particular facts presented and are not
intended necessarily as statements of Department policy.
SUBJECT
The application of the Tennessee sales and use tax to dealer trade-ins.
SCOPE
This letter ruling is an interpretation and application of the tax law as it relates to a specific set of
existing facts furnished to the Department by the taxpayer. The rulings herein are binding upon
the Department, and are applicable only to the individual taxpayer being addressed.
This letter ruling may be revoked or modified by the Commissioner at any time. Such revocation
or modification shall be effective retroactively unless the following conditions are met, in which
case the revocation shall be prospective only:
(A) The taxpayer must not have misstated or omitted material facts involved in
the transaction;
(B) Facts that develop later must not be materially different from the facts upon
which the ruling was based;
(C) The applicable law must not have been changed or amended;
(D) The ruling must have been issued originally with respect to a prospective or
proposed transaction; and
(E) The taxpayer directly involved must have acted in good faith in relying upon
the ruling; and a retroactive revocation of the ruling must inure to the taxpayer’s
detriment.
FACTS
[TAXPAYER NAMES] (each respectively, the “Taxpayer”) are car dealerships [REDACTED]
that sell used and new motor vehicles in [LOCATION], Tennessee.
The Taxpayer has a customer that maintains a fleet of [REDACTED] vehicles. Periodically, this
customer will trade in some of these vehicles and purchase replacement vehicles from the
Taxpayer. [REDACTED].

1

RULING
In a sales transaction where a customer purchases more than one vehicle from a car dealer, is the
sales price for Tennessee sales and use tax purposes calculated by aggregating the total price of
all cars purchased from the dealer in the transaction and subtracting the aggregate value of all
trade-ins received from the customer in the transaction?
Ruling: Yes. In a single sales transaction where a customer purchases more than one
vehicle from a car dealer, the sales price for Tennessee sales and use tax purposes is
calculated by aggregating the total price of all cars purchased from the dealer in the
transaction and subtracting the aggregate value of all trade-ins received from the
customer in the single transaction.
ANALYSIS
TENN. CODE ANN. § 67-6-202(a) (2011) imposes the sales tax on the sales price of each article of
tangible personal property sold at retail in Tennessee. TENN. CODE ANN. § 67-6-102(81)(A)
(2011) defines the term “sales price” in pertinent part as the “total amount of consideration,
including cash, credit, property, and services, for which personal property or services are sold,
leased, or rented, valued in money, whether received in money or otherwise.”
TENN. CODE ANN. § 67-6-510(a) (2011) allows for an adjustment to the sales price of an item
when the purchaser trades in a similar used item as part of the transaction.1 Specifically, TENN.
CODE ANN. § 67-6-510(a) provides that “[w]here used articles are taken in trade, or in a series of
trades, as a credit or part payment on the sale of new or used articles, the [sales tax] shall be paid
on the net difference, that is, the price of the new or used article sold, less the credit for the used
article taken in trade.” TENN. COMP. R. & REG. 1320-5-1-.02(1) (2000) explains TENN. CODE
ANN. § 67-6-510(a), stating that “[w]hen an item of tangible personal property is taken in trade
as a credit or part payment on the sale of new or used articles, the Sales and Use Tax shall be
computed and paid on the net difference between the sales price of the new or used article sold
and any credit actually given for the used article accepted in trade.”
TENN. CODE ANN. § 67-6-510(a) and the accompanying regulations do not specifically state that
a dealer may accept more than one used item as a trade-in with respect to the purchase of another
item. However, the language of the statute and regulations clearly contemplate that a transaction
may involve more than one trade-in item in a single transaction. Importantly, TENN. CODE ANN.
§ 67-6-510(a) uses the plural term “articles,” stating that “[w]here used articles are taken in
trade” a credit is allowed “on the sale of new or used articles” when calculating the sales price.
The Tennessee Court of Appeals has stated that the interpretation of a statute must not render any
part of a statute “inoperative, superfluous, void or insignificant.” Nissan North America, Inc. v.
Haislip, 155 S.W.3d 104, 106 (Tenn. Ct. App. 2004) (quoting State v. Morrow, 75 S.W.3d 919,
1

The newly purchased property and the property traded in must be of a like kind and character. TENN. COMP. R. &
REG. 1320-5-1-.02(2) (2000) requires that “[b]efore any credit may be allowed for items taken in trade or trade-ins,
the item so traded must be of a like kind and character of that purchased, and indicated as ‘trade-in’ by model and
serial number, where applicable, on an invoice given to the customer.”

2

921 (Tenn. 2002)). Here, the disallowance of the trade-in of multiple vehicles in a single
transaction would impermissibly render the use of the plural term “articles” inoperative,
superfluous, void or insignificant.
Accordingly, with respect to a single sales transaction, the Taxpayer may accept the trade-in of
more than one used vehicle with respect to the purchase by its customer of one or more other
vehicles. The sales price of the newly purchased vehicle or vehicles will be calculated by
aggregating the total price of all vehicles purchased from the Taxpayer in that single transaction
and subtracting the aggregate value of all trade-ins received from the customer in that same
transaction.
Note that TENN. CODE ANN. § 67-6-523 (2011) imposes various sales and use tax recordkeeping
requirements on dealers in Tennessee. In particular, TENN. CODE ANN. § 67-6-523(a) requires
every dealer “to keep and preserve suitable records of the sales or purchases” that are subject to
the sales and use tax and “to keep and preserve, for a period of three (3) years from December 31
of the year in which the associated return required … was filed, all invoices and other records of
goods, wares and merchandise, or other subjects of taxation” under the Retailers’ Sales Tax Act.
TENN. CODE ANN. § 67-6-523(b) further provides that every dealer “shall secure, maintain, and
keep for a period of three (3) years from December 31 of the year in which the associated return
required by this chapter was filed a complete record of tangible personal property received, used,
sold at retail, distributed or stored, leased, or rented within this state by the dealer, together with
invoices, bills of lading, and other pertinent records and papers as may be required by the
commissioner for the reasonable administration of” the sales and use tax laws.
Additionally, TENN. CODE ANN. § 67-1-113(a) (2011), which pertains to the general
administration of taxes in Tennessee, requires all persons and entities subject to any tax
administered by the Commissioner of Revenue to “keep and preserve suitable records from
which the taxpayer and the commissioner can determine the Tennessee tax liability, if any.”
The Taxpayer must therefore document the single sales transaction in a manner that clearly
identifies the vehicles involved in that particular transaction. In instances where the Taxpayer is
required by the manufacturer or by law to retain separate documentation with respect to each
vehicle involved in the single trade-in transaction, the Taxpayer may use, for example, a master
sales agreement identifying each vehicle involved.

Kristin Husat
General Counsel

APPROVED:

Richard H. Roberts
Commissioner of Revenue

DATE:

June 21, 2012

3