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Motor Vehicle Taxability - Watercraft and Outboard Motors

Motor Vehicle Taxability - Watercraft and Outboard Motors

“Consideration” or “price” means the aggregate value in money of anything paid or promised to be paid or delivered in exchange for the transfer of either title to or possession of a motor vehicle, all-purpose vehicle, off-highway motorcycle, watercraft, outboard motor or personal watercraft.  “Price” includes manufacturer’s rebates.

A trade-in allowance reduces the price only if you are purchasing a:

  1. New motor vehicle, all-purpose vehicle or off-highway motorcycle; OR
  2. New or used watercraft, outboard motor or personal watercraft from an Ohio licensed watercraft dealer. 

The sales or use tax is computed upon the total amount of consideration, whether in cash, by exchange (trade) or by any means whatsoever.

The tax base includes all amounts charged for the following:

  1. Base price of vehicle, watercraft or outboard motor.
  2. Accessories (floor mats, mud flaps, air conditioning, cruise control, radio, CD player, etc.).
  3. Freight or transportation charges from the manufacturer to the dealer.
  4. National advertising that may be charged on a unit basis.
  5. Service and handling prior to delivery (preparation charge).
  6. Documentary fees (does not include separately stated title and registration fees or fees associated with the documentation of a watercraft with the U.S. Coast Guard).
  7. Undercoating.
  8. Extended warranty, service or maintenance contracts sold with the vehicle, i.e., as part of the vehicle purchase agreement. (Note: Extended warranties, service or maintenance agreements sold  subsequent to the vehicle’s purchase are subject to sales tax, but tax is paid directly to the vendor of the contract, not through the clerks of courts.)
  9. Delivery charges from the dealer to the customer effective Aug. 2003.

**** Special Notes ****

Manufacturer’s rebates and cash down payments do not reduce the “price” for calculating sales or use tax.  However, “price” is reduced by any cash discount not reimbursed by a third party given at the time of sale.

The 12 percent federal excise tax (FET) levied by the federal government on the purchaser of a heavy truck is not included in the “price” since it is a federal tax on the consumer.

Examples include, but are not limited to the following:

(A) An item of tangible personal property; such as another vehicle, a boat, a horse, etc., given in exchange. The fair market value of the tangible personal property exchanged is the amount of consideration. If there is an even trade of motor vehicles between two individuals with no money exchanged, each individual must pay tax based on the fair market value of the motor vehicle.

(B) Real property, such as a lot, that is given in exchange. In this instance, the fair market value of the real property is the amount of consideration and tax must be paid on that amount.

(C) Shares of corporate stock, whether transferred to or from a corporation in exchange for a motor vehicle. For example, the transfer of a motor vehicle from an individual to a corporation of which the individual is sole owner or a stockholder constitutes a sale and the fair market value of the stock given in exchange is the tax base. If there is no established market value for the stock or securities, it is presumed that the stock’s value is equal to the fair market value of the vehicle or the value of the vehicle on the corporate books.

(D) Cancellation of debt owed to the purchaser or new titleholder.

(E) The transfer of a motor vehicle resulting from the assumption, by the transferee (new titleholder), of a mortgage through a “transfer of equity or interest agreement” wherein the transferor (previous titleholder) is relieved of its original principal liability and becomes a guarantor is a transfer for consideration and subject to tax. The tax base is the total amount of the mortgage assumed plus any other consideration given.

(F) The transfer of a motor vehicle as the result of the transferee (new titleholder) paying off the mortgage in the name of the transferor (previous titleholder) is a transfer for consideration. The tax base is the amount of the pay off plus any other consideration given either in trade or money.

(A) Sales to an organization that has been granted and maintains 501(c)(3) status by the Internal Revenue Service or is a not-for-profit organization operated exclusively for charitable purposes in this state. (NP)
Note: A motor vehicle sold to any organization for use in the operation or carrying on of a trade or business is taxable.

(B) Sales in interstate commerce with delivery being made by the seller to a point outside this state for use outside this state or delivered to an interstate carrier for delivery outside of Ohio. (IS)

(C) Sale to a purchaser for one of the following uses: 

(a) As transportation equipment, except those licensed to operate on the public highways, to transport items in the process of production for sale by manufacturing, processing, assembling or refining within a plant. (PT) (See Rule 5703-9-21, Ohio Adm. Code) 
(b) Directly in production of tangible personal property for sale by mining. Used prior to the tipple or crusher, or in the construction, operation and maintenance of private power lines to distribute electric energy for use in mining, whether licensed or not for highway use. (Rule 5703-9-22, Ohio Adm. Code) (DM)
(c) Directly in the exploration for or production of crude oil or natural gas. (DO)
(d) Sale to a nonresident of this state upon presentation of an affidavit executed in this state by the nonresident purchaser affirming that:

    (1) the purchaser is not a resident of this state, 
    (2) that possession of the vehicle is taken in this state for the sole purpose of immediately removing it from the state,
    (3) the resident state provides a nonresident motor vehicle exemption from their sales and use tax law under which Ohio residents can purchase a vehicle and not be required to pay sales or use tax, and 
    (4) that the vehicle will be permanently titled and registered in another state and that it will not be used in the State of Ohio. (NR)

Note: The sale of a motor vehicle consummated in Ohio to a nonresident member of the Armed Forces stationed in Ohio is subject to Ohio sales or use tax. This type of transaction does not qualify under the nonresident exemption because the vehicle will be used in Ohio. Please see the Information Release.

Another exception to the nonresident exemption is the sale of a motor vehicle consummated in Ohio to a nonresident student attending school in Ohio. In this case, the vehicle would not be immediately removed from the state as required by law and is used in Ohio. 

(e) A motor vehicle that will be used as a “yard truck” to transport purchased inventory in a warehouse, distribution center or similar facility when the inventory is primarily distributed outside this state to retail stores of the person who owns or controls the warehouse, distribution center or similar facility. This exemption does not apply if the vehicle is licensed to operate on the public highways. (WH)

(D) Where the purchaser of the motor vehicle is:

(a) The State of Ohio or any political subdivision thereof. (SP)
(b) The federal government or any agency thereof. (FA)
(c) A motor vehicle dealer (new, used, leasing or salvage) obtaining title for “resale.” The clerk of courts will record on the title the valid dealer’s permit number and/or vendor’s license number. (RD, RL, RN, RO, or SR)
(d) A motor vehicle rental company having a valid vendor’s license (Resale – daily rental). (RR)
(e) A direct pay permit holder, in which case the direct pay number (98-XXXXXX) will be recorded on the title. (DP)
(f) A motor vehicle or watercraft dealer from another state or country and the vehicle, watercraft or outboard motor will be resold. (OD)

(E) Where evidence (court documents, Highway Patrol inspection report, etc.) obtained and retained by the clerk of courts is such that tax is not due as a result of: 

(a) Transfer of title pursuant to a divorce decree. (DV)
(b) Transfer of title to a beneficiary through inheritance in the administration of an estate by Probate Court where there is no clear consideration. (IH)
(c) Where a finance company or lending institution takes constructive possession of a mortgagor’s car to protect its loan and thereafter the same mortgagor makes definite arrangements with the company to regain the car, it shall be titled back to the original mortgagor as “Redeemed.” (RP)
(d) The issuance of title to an unclaimed motor vehicle when the proper affidavit has been executed. (UC)
(e) The transfer of a pre-ATPS (gold) title to an ATPS title without a change of ownership. (HE)
(f) A resident of another state that  purchased (not including rentals or leases) in their home state a motor vehicle for use in that state, but then moves to Ohio. If the individual takes up residence in Ohio at least six months after purchase of the vehicle, they may obtain an Ohio title without paying use tax. Purchaser must prove to the satisfaction of the clerk of courts that the vehicle was purchased outside Ohio and used outside Ohio for at least six months. (CV) 
(g) Insurance company taking title as result of a claim settlement may use the term “Resale – insurance claim.” (IC)
(h) All-purpose vehicle (APV) purchased prior to July 1, 1999; clerk of courts must have confirmation of the purchase date. (AP)
(i) Off-highway motorcycle (OHM) purchased prior to July 1, 1999; clerk of courts must have confirmation of the purchase date. (OH)
(j) New or used manufactured home or mobile home purchased on or after Jan. 1, 2000. (MH)
(k) Personal watercraft sold before Jan. 1, 2000. (WP)
(l) Transfer of a motor vehicle into the name of a franchised motor vehicle dealer for purposes of demonstration to prospective purchasers. When issuing title, the word “Demonstrator” must be on the title. (RD)
(m) Sales of emergency and fire-protection vehicles to volunteer fire departments that are under contract with a political subdivision of this state (county, township or municipality) to provide fire protection and emergency services. (VF)
(n) Effective January 2013, the United States Department of State, Office of Foreign Missions, has informed the Department of Taxation that foreign diplomats and their members and dependents must have a Motor Vehicle Tax-Exemption Letter issued by the Office of Foreign Missions in order to purchase or lease a motor vehicle without paying use tax.  The Diplomatic Tax Exemption Cards previously used by such persons to make tax-exempt purchases cannot be used to purchase motor vehicles exempt from use tax. (FD) 
(o) The transfer of title to a motor vehicle that was purchased outside of Ohio for use outside of Ohio by a member of the Armed Services. The titleholder must be able to establish the fact that the vehicle has been or will be used outside of Ohio for at least six months after it is acquired. (CM)
(p) The purchaser of a motor vehicle is using the vehicle (through a power take-off unit) in the production of a product for sale by manufacturing, processing or refining (i.e., cement mixer where the mixing unit is operated through a power take-off unit instead of a separate power source). (MO)
(q) The purchaser of a motor vehicle is purchasing a specially designed and equipped motor vehicle for use in rendering a public utility service. (PU)

Note: The PU exemption will cover ambulance services if the following conditions exist: 

(1) the purchaser has a certificate of public convenience and necessity; , and 2) the vehicle is directly and primarily used in providing the ambulance service. The purchaser must provide a motor vehicle exemption certificate indicating that the vehicle is “used directly in the rendition of a public utility service.”  Note—Private ambulance companies do not qualify for the public utility exemption unless they hold a certificate of public convenience and necessity.  

(r) The transfer of title to the beneficiary or beneficiaries stated on a title that is in the name of a sole owner with transfer-on-death designation. (TD)

(F) Where there is no “good and valuable consideration” given in exchange for the transfer of title to the motor vehicle, watercraft or outboard motor:

(a) The transfer of a corporate  asset to the surviving corporation as a result of a merger or to a new corporation as a result of a consolidation. (MR or CS)
(b) The transfer of title from a corporation to one of its stockholders upon dissolution of the corporation. (DS)
(c) The transfer of title due to a corporate name change only. (NC)
(d) Transfer of title from an individual to a partnership of which the individual is a member if no clear consideration is given by the partnership for the transfer. (IP)
(e) Transfer of title from a partnership to a partner (individual) upon dissolution of the partnership. (PD)
(f) Transfer of title from an employee to an employer for the sole purpose of insuring the vehicle as a part of the employer’s insurance. (PRICE OF $0.00)
(g) Transfer of title from an employer to an employee for the sole purpose of insurance. (PRICE OF $0.00)
(h) Where a trade-in is titled by a dealer for resale pursuant to the sale of another vehicle and that sale is not consummated, the trade-in title may be transferred back to the original titleholder as “Redeemed.” (RS)
(i) The transfer of title where an undisturbed mortgage is involved and the transferor is not relieved of his original principal liability and there have been no changes in the original mortgage paper filed or any other consideration given. Also, title transfers from two names to only one of the original names and the mortgage remains in both names or the title transfers from two names to only one of the original names and the mortgage also changes from two names to only one of the original names. (UM)
(j) The transfer of title between parents and their children, husband and wife, or between two unrelated parties in the absence of any clear consideration. (PRICE OF $0.00)
(k) The transfer of an unencumbered title from a sole owner, partnership or corporation to a limited liability partnership (LLP) or limited liability company (LLC), and there is no clear consideration. Or, the transfer of title and there is an outstanding loan or lien on the title, and there is no change to the loan agreement as a result of the transfer (undisturbed mortgage). (PRICE OF $0.00) 

(G) Where title to a vehicle is  transferred to an individual who is not a motor vehicle dealer but the vehicle is to be resold.

(a) A finance company or bank repossessing a vehicle to protect the loan may use the term  “Resale – financial institution.” (RF)effective June 9, 2000.
(b) Pawnbroker taking title to a vehicle pursuant to Section 4505.102 of the Ohio Revised Code to protect a loan may use the term “Resale – financial institution.” (RF) effective June 9, 2000.
(c) Insurance company taking title as result of a claim settlement may use the term “Resale – insurance claim.” (IC)
(d) Any licensed dealer taking a salvage title to a vehicle that is to be dismantled and sold as parts, or to sell the salvage vehicle on a salvage title to a new or used dealer or an individual may use the term “Salvage – resale.” (SR)
(e) Manufacturer taking title to a chassis which will become part of a manufactured item that will be titled as a motor vehicle when sold to the ultimate consumer must accompany the application for title with an exemption certificate setting forth the statutory reason for exemption of “use or consumption as a material or part for incorporation into personal property to be produced for sale by manufacturing, assembling or processing.” (RM)
(f) Financial institution taking title to a motor vehicle for the sole purpose of selling the motor vehicle to a licensed motor vehicle dealer may use the term “Resale – wholesale.” (RW) 
(g) Farm implement or construction equipment dealers sometimes purchase and resale a horse, utility or equipment “trailer” with a gross weight in excess of 4,000 pounds that requires a title.  If the implement or construction equipment dealer is in the business of regularly selling such trailers, they must be licensed as a motor vehicle dealer by the Bureau of Motor Vehicles.  However, if they only occasionally sell trailers that must be titled, the BMV does not require them to obtain a license. Nevertheless, the implement or equipment dealer must have a vendor’s license as they are making retail sales. The implement or equipment dealers can claim the resale exemption on these trailers, if they are acquired for the purposes of resale. Such dealers MUST submit an exemption certificate with the application for certificate of title using the term “Resale – implement/equipment dealer.” (RI)

Special Note: A farm implement or construction equipment dealer cannot use this exemption to purchase trailers that are used by the dealers to transport other tangible personal property that it sells (tractors, plows, disc harrows, fertilizer spreaders, combines, bulldozers, backhoes, motor vehicles, etc.).

No, if the purchaser shows proof that he or she paid sales tax on all parts used to assemble the vehicle or watercraft, then no sales or use tax is due.  The self-assembled exemption code is SA.

Yes, if the purchaser fails to prove that sales tax was paid on all or some of the parts, then sales and/or use tax is due.  In that case, the tax due is based on the total amount paid for all parts, with credit given for any tax paid. The clerk must collect the balance due when the title is issued.

Yes, per the Ohio Department of Natural Resources, Watercraft Division.

If a resident of another state purchases a watercraft, outboard motor or personal watercraft in Ohio for use in Ohio, an Ohio title must be issued. The title can be obtained at any office of the Ohio clerk of courts, but the tax charged is the rate in effect in the county of the watercraft’s or outboard motor’s primary use.

Note: If the watercraft, outboard motor or personal watercraft was first purchased outside of Ohio, credit is given for any sales or use taxes legally paid to another state (not country) up to but not exceeding the amount due in Ohio. If the Ohio tax liability is greater than the amount paid to the other state, the balance would be due Ohio when the Ohio title is issued.

Yes. According to the lemon law, the manufacturer is required to refund to the purchaser the entire purchase price plus the sales tax. That refund is used to purchase the second motor vehicle, watercraft or outboard motor. Therefore, sales tax must be paid to the clerk of courts when titling the replacement vehicle.

If the manufacturer has refunded the entire purchase price and sales tax, it can apply for a refund of the sales tax on the first purchase.

Effective Sept. 21, 2006, a dealer may donate a motor vehicle, watercraft, and/or outboard motor to a nonprofit, charitable organization and not have to pay tax.


Prior to Sept. 21, 2006, when a dealer acquired an item without payment of tax under the “resale” exception and later transferred ownership for no consideration (donation), the dealer owed tax on the dealers’ cost of acquiring the item. Since the dealer did not sell the donated item, the dealer lost the “resale” exception and was required to pay tax under a consumer’s use tax return or through the voluntary payment procedures.


This change was enacted in 5741.02 (C)(9):


(C) The tax does not apply to the storage, use, or consumption in this state of the following described tangible personal property or services, nor to the storage, use, or consumption or benefit in this state of tangible personal property or services purchased under the following described circumstances:


(9) Tangible personal property held for sale by a person but not for that person's own use and donated by that person, without charge or other compensation, to either of the following:


(a) A nonprofit organization operated exclusively for charitable purposes in this state, no part of the net income of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which consists of carrying on propaganda or otherwise attempting to influence legislation; or


(b) This state or any political subdivision of this state, but only if donated for exclusively public purposes.


For the purposes of division (C)(9) of this section, "charitable purposes" has the same meaning as in division (B)(12) of section 5739.02 of the Revised Code.


This change applies to donations made on or after September 21, 2006, regardless of the date the property was acquired by the donor.


If a dealer transfers a vehicle for no consideration to a consumer that is not exempt according to R.C. 5741.02(C)(9), use tax is due on the value of the vehicle. The tax due is computed by using the price paid for the vehicle when the vehicle was acquired by the dealer. If the dealer accepted the vehicle in trade, the amount the dealer allowed as a trade-in will be the amount on which to compute the tax.

For more information, please see the Information Release titled Motor Vehicles - Dealer Transfers for No Consideration, and Sales or Gifts to Nonprofit Organizations.

The sale of watercraft, outboard motors and parts thereof by boat dealers and/or brokers is a retail sale subject to the sales or use tax regardless of who holds title to such watercraft, outboard motors or parts prior to the sale.

Ohio Admin. Code 5703-9-40 states:

Persons engaged in the business of selling tangible personal property, who are authorized, engaged or employed to sell tangible personal property belonging to another are the vendors of such tangible personal property and shall be responsible for the proper collection and remittance of the sales tax with respect to such sales.

Persons engaged in the business of selling tangible personal property shall include persons who hold themselves out to the public as conducting a business regardless of whether the merchandise sold is owned by them or by other persons who have authorized, engaged or employed them to sell tangible personal property.

Therefore, persons who make sales of tangible personal property on their own behalf or on behalf of others must collect the tax on all such sales unless the sale is exempt. Such dealers and/or brokers must have a vendor's license or out-of-state seller’s use tax registration with Ohio for the collection and remittance of tax.  Tax must be paid by the dealer/broker as follows:

(a) On titled watercraft and/or outboard motors, the dealer/broker must remit the tax [net of discount if the dealer/broker has a vendor’s license or an out-of-state seller’s registration (99-XXXXXX)] to the clerk of courts at the rate in effect in the purchaser’s county of residence.

(b) On watercraft not required to be titled, documented watercraft or accessories and parts, the dealer/broker must remit the tax to the Department of Taxation on the dealer/broker’s tax return. The remittance is net of discount if the return is timely filed and the tax due is paid in full. The tax rate to collect is the rate in the county where the customer takes possession of the watercraft or accessories.

**** Special Note ****

If the dealer/broker is licensed with the Ohio Department of Natural Resources as a watercraft dealer, the “price” for calculating sales tax may be reduced by any watercraft or outboard motor taken in trade by the dealer/broker.

YES

NO

If a motor vehicle is traded for a new motor vehicle, all-purpose vehicle or off-highway motorcycle in a purchase or lease agreement.

If a motor vehicle is traded for a used motor vehicle, all-purpose vehicle or off-highway motorcycle in a purchase or lease agreement.

If a watercraft, outboard motor or personal watercraft is traded for a new/used watercraft, outboard motor, and/or personal watercraft and the seller (located in-state or out-of-state) is, at the time of sale, licensed as a watercraft dealer through the Ohio Department of Natural Resources, Watercraft Division. License format is OH NNNN ZZ.   

If a watercraft, outboard motor or personal watercraft is traded for a new or used motor vehicle, all-purpose vehicle or off-highway motorcycle.

 

If a vehicle is under a valid lease and the lessee is attempting to trade-in the vehicle that is titled in the name of the leasing company. Under the terms of most lease agreements, the leasing company (during the life of the lease) can only sell (transfer title for consideration) the leased vehicle to the lessee or to a dealer. If the leasing company sells the vehicle to a dealer, it is no longer available to be used as a trade-in by the lessee.  Note: The answer would be yes if the lessee purchased the leased vehicle, paid sales tax on the purchase to the leasing company, titled it in the lessee’s name, and then traded it in on the purchase of a new motor vehicle.

 

If a watercraft, outboard motor, or personal watercraft is traded for a new/used watercraft, outboard motor or personal watercraft and the seller (located in-state or out-of-state) is not, at the time of sale, licensed as a watercraft dealer through the Ohio Department of Natural Resources, Watercraft Division.    

 

If a motor vehicle is traded for a watercraft, outboard motor or personal watercraft.

Yes. A motor vehicle dealer may claim “Resale – watercraft” (RV) when the dealer acquires a watercraft, if it is acquired for purposes of resale. The dealer need only provide a valid vendor’s license for the dealership’s location (do not use the motor vehicle dealer’s permit number to support exemption). If the dealer uses the watercraft for personal use, a resale exemption should not be claimed and tax must be paid on either the price paid or the value given in trade for the watercraft.

When the dealer, who is not a licensed watercraft dealer, sells a watercraft, title must be obtained in the customer’s name. Sales tax must be collected. If the sale is to an Ohio resident, tax is collected at the rate in effect in the customer’s county of residence. The tax is paid to the Clerk of Courts when title is obtained. If the sale is to a nonresident of Ohio, tax is collected at the rate which is the lower between the Ohio rate in the dealer’s county, or the rate in the state of the customer. The customer must complete form ST WC AFF. The tax is submitted directly to the Department of Taxation on form ST WC NR, along with the completed ST WC AFF. A nonresident title may still be obtained from the Clerk of Courts.

Titled motor vehicles, watercraft or outboard motors are subject to tax at the rate in effect in the county of the purchaser’s residence.

A lease of titled motor vehicles, watercraft or outboard motors, whether the lease is paid in one upfront payment, (no monthly payments), or by a stream of payments, is taxed at the rate in effect in the county of the primary property location of the vehicle(s) or watercraft. This may be the county of the lessee’s residence, or in the case of multiple vehicles leased to one person but used in several counties, the county where the vehicles are garaged overnight.

A sale or lease of a documented watercraft is taxed at the rate in effect where the customer takes possession of the watercraft. Any subsequent taxable charges on the lease will be sourced to the primary property location for the period in which the charges are incurred.

“Primary property location” means an address for tangible personal property provided by the lessee or renter that is available to the lessor or owner from its records maintained in the ordinary course of business, when use of that address does not constitute bad faith.

There are some sales of titled or untitled vehicles, watercraft, outboard motors or other items of tangible personal property made by vendors or dealers that are not “licensed” dealers under sections 4517 or 1547 of the Ohio Revised Code. An example would be a vendor of all purpose vehicles or off-road motorcycles that is “registered” with the Bureau of Motor Vehicles, or a vendor that sells boats less the 14 feet in length. The tax would be collected by the vendor/dealer and reported and paid to Ohio on the vendor’s sales tax return.

Additional Resources

Additional Resources