Before someone goes on a horse hunting trip, hopefully they check their wallet to see that they have enough money to cover the cost of the horse, the vet check, transportation costs, tack (because the new horse is always a different size that all of your current tack), etc, etc. But many potential buyers never consider that sales tax may be due on their purchase.
There have been efforts to create a uniform sales tax that would be the same for all states but for now, each state regulates the imposition of sales tax in that state. As I mentioned in a previous post, some states charge sales tax on horse boarding. But many more charge sales tax on the sale of horses. Generally, most sales of tangible personal property are taxed and horses would meet that description.
If you purchase tangible personal property in a state with no sales tax, or the sales tax percentage where you made the purchase is less than your home state, you may be liable for use tax for the “use, storage or consumption” of that property in your state.
Because each state is different, I can’t write 50 articles about sales tax on the sale of a horse. But I can tell you about a situation which is a good example of possible sales/use tax liability for someone engaged in the business of selling horses. A regularly imports horses from Europe, both as an agent for his clients and buying horses directly himself, for training and resale later. A had a working relationship with several sales barns in Europe. So for purposes of simplification, even when acting as an agent for a client, it was A’s name on the paperwork for U.S. Customs. A was recently contacted by the Department of Revenue for his state regarding use tax liability on the horses purchased in Europe and brought to his state. If his state decides to audit these transactions, they could audit multiple years and some states have no statute of limitations for the examinations of returns. With some states charging as much as 60% in penalty and interest, this could become a very expensive problem for A.
There are many possible scenarios for the sale of a horse including: resident seller to resident buyer, resident agent (who holds no title to the horse) to resident buyer, resident agent to nonresident buyer, resident seller to nonresident buyer and nonresident seller (outside United States) to resident buyer and each may involve sales/use tax liability.
In my state of Massachusetts, if a horse residing in Mass is purchased and delivered to another state, the seller should provide the buyer with a letter of delivery. If there is sales tax in the new owner’s state, the new owner is responsible for the liability. But, if the horse comes back into Mass to live within six months of purchase, the owner would be responsible for Mass sales tax if they had not paid sales tax in their state. Sound complicated? It is. Some CPA firms specialize in this area due to the complexity and variety of regulations among states.
Though sales tax audits may not sound as familiar as an audit by the IRS, they are much more common. And with the current state budget shortages, some states look to sales tax audits as a way to make up some of the difference. So it’s important to the future of your horse sales business to learn more about the sales/use tax regulations of your state. Contact your state Department of Revenue as well as your state horse council, farm bureau or other related agency for general information. If you find that you have a potential sales tax liability, contact an attorney or CPA who specializes in this area.