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Dream Cars, but Not Dream Audits

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Dream Cars but Not Dream Audits

Several cases pending before or recently decided by the Ohio Board of Tax Appeals (“Board”) indicate that the Ohio Department of Taxation is actively auditing automobile dealers for commercial activity tax (“CAT”). The application of the CAT and its interpretation in these cases present risks and potential opportunities for automobile dealers located in Ohio and in surrounding states. This SALT Buzz explores a decision by the Board on the so-called “wholesale exclusion,” an exclusion from gross receipts that may apply to sales of vehicles between automobile dealers. It also discusses undecided cases involving the sale of vehicles to Ohio residents by out-of-state dealers.

Motor Vehicle Dealer “Wholesale Exclusion”

Rino’s Auto Sales, Inc., BTA Case No. 2019-2728 (August 23, 2023) involves receipts from the transfer of vehicles between automobile dealers. The Board provided the following example of a typical transaction at issue in the case:

A customer approaches a dealer (“transferee dealer”) about purchasing a specific vehicle, for example, a blue pickup truck with under 50,000 miles. Assuming the transferee dealer does not have a suitable pickup truck in stock, the transferee dealer may attempt to obtain a suitable vehicle elsewhere. He or she can approach other dealers or attempt to buy a suitable vehicle at an auction. If the transferee dealer seeks out another dealer, then the information provided to the selling dealer is very general, even as simple as “I need this truck for a customer[.]” Rino’s Br. at 3. If the selling dealer has a suitable pickup in stock, she or he will transfer title to the buyer’s dealer, who will in turn transfer title to the buyer.

Such transactions may be eligible for the “wholesale exclusion” which provides that receipts realized by a motor vehicle dealer from the sale or transfer of a vehicle to another dealer for the purpose of resale based upon the “need to meet a specific customer’s preference for a motor vehicle” are not taxable gross receipts. Ohio Revised Code (R.C.) 5751.01(F)(2)(t). In her final determination, the Tax Commissioner determined that Rino’s Auto Sales, Inc. (“Rino’s”) had not shown that the transactions at issue qualified for the exclusion. Rino’s appealed her decision to the Board.

At the hearing before the Board, Rino’s provided evidence to support its position that the relevant transactions qualified for the “wholesale exclusion.” This included a report of the transactions showing the date Rino’s purchased the vehicle, the transferee dealer, the date of sale to the transferee dealership, and the issue date to the transferee’s customer. Rino’s also supplied monthly sales information and printouts showing changes in title from the Ohio Department of Public Safety.

The Board determined that Rino’s did not show that its receipts should be excluded from CAT under the “wholesale exclusion.” Specifically, the Board found that Rino’s had not shown that the transfers were completed for a specific customer based on that customer’s preferences. Rino’s did not present any information to the Board about the ultimate customers in the transactions at issue. The Board suggested that testimony at the hearing about the specific customers in each transaction may have supplemented the information provided by Rino’s. However, Rino’s witnesses testified that a selling dealer would not have information about the customer in these types of transactions. Dealers may not provide customer information to each other to protect their customer base from competitors. Some dealers also believe that federal law prohibits them from disclosing customer information to other dealers. The Board elaborated that the “wholesale exemption” statute does not require the taxpayer to identify the ultimate customer by name but does require the taxpayer to show that there was a specific customer and that the purchase was based on that customer’s preferences. The Board found that Rino’s failed to do so.

Another case involving the “wholesale exclusion,” Stratton Auto Sales Inc., BTA Case No. 2022-957, is pending before the Board with a hearing scheduled in June 2024. Stratton Auto Sales Inc. is represented by the same attorney as Rino’s. Perhaps the decision in Rino’s will guide the evidence and testimony presented before the Board in Stratton and result in a different outcome.

The Tax Commissioner has a form, “Notice of Motor Vehicle Transfer for Customer’s Preference” that summarizes information on the car and that a transferor can provide to the transferee to sign. The form includes a space for the customer’s name. It does not appear that Rino provided the completed forms during the audit. Because it was not asked to, the Board did not address whether the form would be considered sufficient evidence, even if the customer’s name was not provided. Our firm has had success in assembling information to document that an exchange was to accommodate a customer’s preference and reducing potential audit assessments related to wholesale automobile exchanges.

In the Rino’s decision, the Board states that the taxpayer “is actually seeking a blanket exclusion (or a bright line rule based on the number of days between transfers)[.]” One question is whether from a public policy perspective or because the customer preference requirement is so burdensome that a legislative change should be put in place to exclude all wholesale sales. Alternatively, a legislative or policy change that allows a transferee dealer to provide the executed form as documentation of customer preference in a sale without requiring the customer’s name could ease the burden. Or, as suggested by the Board, an updated rule could exempt all transactions between dealers where transfer to the final customer is completed within a set number of days. Alternatively, a legislative change providing a bright line test in the statute could also help resolve the issue.

Non-Ohio Dealers with Ohio Customers

Straub Nissan LLC, BTA Case No. 2022-422, involves a group of automobile dealerships near Wheeling, West Virginia. Because of their proximity to Ohio, the dealerships regularly sell vehicles to Ohio residents. Straub Nissan LLC (“Straub”) argues that because customers take possession of the cars in West Virginia, the gross receipts should be sitused to West Virginia. The Tax Commissioner contends that sales to Ohio residents should be sitused to Ohio because that is where the vehicles are “ultimately received.” A hearing before the Board was held on April 4, 2023, and the parties have filed briefs.

Straub and the Tax Commissioner both focus on R.C. 5751.033(E), which states:

Gross receipts from the sale of tangible personal property shall be sitused to this state if the property is received in this state by the purchaser. In the case of delivery of tangible personal property by motor carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property. For purposes of this section, the phrase “delivery of tangible personal property by motor carrier or by other means of transportation” includes the situation in which a purchaser accepts the property in this state and then transports the property directly or by other means to a location outside this state. Direct delivery in this state, other than for purposes of transportation, to a person or firm designated by a purchaser constitutes delivery to the purchaser in this state, and direct delivery outside this state to a person or firm designated by a purchaser does not constitute delivery to the purchaser in this state, regardless of where title passes or other conditions of sale.

Straub argues that because its customers took possession of the vehicles in West Virginia, that is where the goods were received and at that point, all transportation under the statute is done. The Tax Commissioner contends that the transportation of the vehicles is not completed until the buyers drive the vehicles to Ohio. In addition to the statute, the Tax Commissioner cites Mia Shoes, Inc., BTA Case No. 2016-282 (August 8, 2019). In Mia, the Board held that a seller should situs receipts to Ohio if the seller knew that the buyer was transporting the goods to Ohio. The Tax Commissioner asserts that Straub’s records show that it knew vehicles sold to Ohio customers would ultimately be transported to Ohio, and therefore, should be sitused to Ohio.

Straub presents several constitutional issues that it claims arise from the Tax Commissioner’s position. First, Straub explains that its sales to Ohio customers are subject to the West Virginia corporate income tax. Therefore, it argues that if these receipts are subject to CAT, Straub would be subject to the “burden of multiple taxation” in violation of Commerce Clause of the U.S. Constitution. Second, Straub contends that the Tax Commissioner is violating the Due Process Clause and the Commerce Clause of the U.S. Constitution by taxing commerce that takes place wholly outside of Ohio’s borders. Finally, Straub argues that at most, Ohio may only tax a portion of the receipts from the sale, rather than the full sale amount. Straub states that the transactions at issue are not interstate transactions, but if they were, the Due Process Clause and the Commerce Clause of the U.S. Constitution would require the receipts to be apportioned to both West Virginia and Ohio.

The attorney who represents Straub also represents the taxpayer in Wharton Auto Group Inc., BTA Case No. 2022-743. Wharton Auto Group Inc. is another West Virginia automobile dealer who was assessed for CAT on receipts from sales to Ohio residents. Wharton has been stayed by the Board pending a decision in Straub.

Since the Tax Commissioner appears to take the position that automobile dealers not located in Ohio should situs receipts from sales to Ohio residents to Ohio, there may be refund opportunities for Ohio automobile dealers that sell to non-Ohio residents. Based on the Tax Commissioner’s position, Ohio dealers who sell vehicles to non-Ohio residents should situs those receipts to the customers’ home states. The Tax Commissioner’s application of the statute would mean that those vehicles would ultimately be received outside of Ohio, and therefore not sitused to Ohio. Furthermore, such dealers could lower their CAT liability going forward by selling vehicles to non-Ohio residents.


Together, these cases warn “seller beware.” When selling to other dealers, automobile dealers in Ohio should carefully consider what information and documentation they have that could prove the existence of a specific customer with a specific preference for the vehicle to be sold. Automobile dealers in Ohio and in surrounding states should be on the lookout for a decision (and potentially future appeals) in Straub regarding the situsing of sales to buyers located in another state.

If you would like to further discuss the contents of this post, please reach out to any of our professionals.

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