Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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U

570.0000 USE OF PROPERTY IN STATE AND USE TAX GENERALLY

Annotation 570.0167

(a) IN GENERAL

570.0167 Horse-Birth of More than One Foal as an Incident of Use. A holder of a seller's permit (issued for the purpose of engaging in the sale of horses) purchased, in March 1981, a horse under a resale certificate. For the period from March 1981 through March 1983, when the permit was closed out, the purchaser made no sales and reported as such on the sales and use tax returns which he filed. Evidence provided by the purchaser substantiated that the subject horse was held for resale in the regular course of business until April 1985, the approximate date the second foal was born.

Evidence provided is as follows:

(1) The horse was consistently advertised for sale.

(2) The purchaser maintained a separate bank account for his business with a "d.b.a." name.

(3) The horse was shown at a number of horse shows for the purpose of finding a purchaser.

(4) The purchaser entered into an agreement with a third party for the purpose of, among other things, marketing the horse for sale.

In this situation, the fact that the horse was depreciated for income tax purposes for several years is inconsistent with the holding of the animal for sale in the regular course of business. If the depreciation had been in error, the taxpayer would generally be required to have filed amended returns undoing the depreciation. However, a review of the income tax returns for the years the horse was depreciated disclosed that the purchaser of the horse derived no tax advantage from the depreciation claimed since claimed deductions from other sources were more than sufficient to shelter the purchaser's entire income. There was, thus, no need to file amended returns to undo the tax benefit from the depreciation. The fact that the horse was depreciated, therefore, did not dictate the finding that the horse was not held for sale in the regular course of business. Instead, we look to the other applicable facts.

The birth of one foal generally increases the sales price of a horse because it shows that the animal is capable of production. Generally, the birth of more than one foal is an indication that the horse is being held for breeding rather than resale.

Under the above circumstances, the horse was purchased for resale and was held for sale in the regular course of business until April 1985, the approximate date the second foal was born. Use tax is due on the purchase price as of that date. The fact that the horse was held for breeding is supported by the fact that the horse is now awaiting the birth of yet another foal in 1986. 8/27/85.