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TO: ALL COUNTY AUDITORS - Bulletin No. 251
FROM: Edgar L. Lindley, Tax Commissioner
DATE: January 26, 1981
RE: Inventory exclusion -New taxpayers
When a taxpayer first engages in business in Ohio, he is liable for a pro-rated tax on his personal property for the current return-year. If he has acquired a going business, he is allowed to exclude property which the predecessor returned for the same year.
For inventories, the exclusion has previously been assumed to be equal to the predecessor's average inventory unless the inventory turnover rate indicates that none of the transferred inventory appeared in the predecessor's reported inventory. The Ohio Supreme Court, in C & R Warehouse, Inc v. Lindley recently stated that the amount of inventory excludable by the new taxpayer is the amount of inventory transferred or the average inventory associated with the transferred inventory reported by the predecessor for the same return-year, whichever is less. Any excess of his estimated average inventory over the excludable amount is listable by the new taxpayer.
This method of calculating the exclusion is applicable to all assessments which are open for amendment, effective immediately.
EXAMPLES
Assume Taxpayer A has filed his current year's tax return and sells his entire business to Taxpayer B on July 1. Taxpayer B has not been engaged in business in Ohio before that date. The allowable inventory exclusion for B's new taxpayer return under differing inventory levels is as illustrated below.
Amount transferred $15,000 $15,000 $15,000
Amount reported by A 17,500 14,000 14,000
Amount estimated by B 19,000 19,000 12,000
Amount excludable by B 15,000 14,000 12,000
Amount reportable by B 4,000 5,000 -0-
