Sales Tax & Trade-Ins

When taking in an item on a sale, keep in mind that the trade-in is just another form of payment. Sales tax must be paid on the entire amount of the new item being sold! Don’t subtract the trade in value before figuring sales tax on the sale.

As far as the State Board on sales taxes is concerned, you are still making a sale of the new item, and its full purchase price is taxable. The trade in is only a different kind of legal tender being used to pay for the new item.

For example, Joe Smith buys a watch for $1,650.00 and trades in a watch worth $500.00. He wants to pay the balance in cash. Does he pay $1,150.00 plus tax, which is $1,239.13? NO! He pays $1,650.00 plus tax, less the $500.00 trade, which is $1,277.88.