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Simon v. Director, Division of Taxation

24 N.J. Tax 509 (2009)

TAXATION; SALES TAX; TRADE-IN CREDIT — A trade-in credit against sales tax otherwise payable is available only if the item traded in resulted in a credit against the purchase price for a new item, had been accepted as partial payment, and was intended for resale to the party accepting the trade-in.

A couple bought a new sailboat through a broker. They also utilized the broker’s services to assist in the sale of their old boat. The brokerage contract did not require the broker to take possession of the old boat or to deliver it to a buyer. The couple intended to finance their purchase and to use a portion of the proceeds from the sale of their old boat to complete the purchase. The couple found a buyer, and a month before their buyer was obligated to accept or reject delivery of their old boat, the couple purchased the new sailboat. The bill of sale referenced a deposit, financing, and a balance due upon delivery of the new boat. The couple intended to pay the balance from the net proceeds of sale. The couple then sold their old boat.

When the couple registered their new sailboat in New Jersey, they were required to pay a use tax in order to register the boat. The couple claimed that they traded in their old boat for the new boat, and thus were entitled to a “trade-in credit” on the use tax owed for the new boat pursuant to N.J.S.A. 54:32B-6. The Director of Taxation rejected their claim and the Tax Court affirmed.

According to the Tax Court, a “trade-in credit” would have been available to the couple if: (a) they had received a credit as against the purchase price for the trade-in of their old boat; (b) their old boat had been accepted as partial payment as against the purchase price for the new boat; and (c) the old boat was intended for re-sale by the party accepting the boat. Here, none of those criteria were satisfied. The bill of sale for the new boat indicated that the broker did not reduce the price of the new boat to reflect a credit for the value of the old boat. So, the couple submitted a corrected bill of sale that referenced the application of the proceeds from the sale of the old boat toward the purchase price of the new boat. The couple argued that the corrected bill of sale was evidence of a trade-in. The Court disagreed, finding that the corrected bill of sale did not demonstrate that the old boat was being traded in. It merely identified a potential source of funds to be used by the couple to complete the purchase. In addition, the old boat was never accepted as partial payment for the purchase of the new boat. The broker never accepted possession or ownership of the old boat. Its contract specifically said the broker did not have to take delivery of the old boat or to deliver the boat to the buyer. Since the broker never took possession of the old boat, it could not be argued that the boat was accepted by the broker as partial payment for the price of the new boat. Finally, the Court found that the old boat was never intended for re-sale by the broker. The Court noted that all the brokerage contract provided that the couple’s failure to deliver the old boat to the buyers did not extinguish the broker’s right to a commission. The Court noted that if the couple’s sale of the old boat failed, they would retained possession of the old boat and presumably would have had an outstanding balance on their purchase of the new boat. Therefore, there was no “trade-in.”


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