Sales Tax on horse sale for hobby owner?

[F_Alter1]

So I’m selling a horse that is 6 now that I bought as a weanling. I paid $5k for him and in the last year alone I have invested $15000 in board and professional full training in him, let alone the cost of feeding and caring for him prior to that. I’m selling him for around $25K.

I’ve researched the laws in my state and it says all horse sales are taxable unless the horse is being sold for breeding purposes (horse is a gelding, so this is n/a). They don’t seem to have a provision for people who are not running a business (those individuals also have the ability to write off their expenses related to the horses they sell). So, given I sell him for $25K, am I required to pay sales tax on the entire purchase price, even though my actual profit after taking account what I’ve put into the horse is well…effectively more like a loss? If I read the law correctly, it sounds like the only amount I can deduct off the $25K is the original $5k purchase price.

This doesn’t seem right, but seems to be the case if I’m understanding the tax law correctly.

[F_Alter1]

Also, I’m potentially selling the horse to someone who lives in a state that has no sales tax. I don’t think that matters though?

[candyappy]

I’ve never heard of the buyer or seller paying sales tax on a horse purchase. Reporting the sale as income on your taxes is usually how we handle livestock sales. Must be different where you are?

I am just a hobby owner/ seller though…

[F_Alter1]

Hmm - It seems in some states you have to pay capital gains tax, some states you consider it taxable income, and in others (mine) it seems we pay retail sales tax. I’m now quite confused and obviously I will just hire an accountant next year but I’m still curious if anyone has run into this.

[SmartAlex]

We used to buy horses at auction in KY. We paid Sales Tax on the geldings.
I wouldn’t do it on a private horse sale when I’m not reporting the sale as business income. However, if you determine that tax is owed, figure it into the sale price now.

[Guilherme]

[QUOTE=F_Alter;8189157]
Hmm - It seems in some states you have to pay capital gains tax, some states you consider it taxable income, and in others (mine) it seems we pay retail sales tax. I’m now quite confused and obviously I will just hire an accountant next year but I’m still curious if anyone has run into this.[/QUOTE]

In general sales tax is collected on the total sale price of an object. It the object is delivered out of state then maybe you can avoid the tax. Check your state’s tax rules. You state dept. of revenue should be able to point you to the rules.

Income tax is different. In general it’s a tax on net income. What constitutes “net income” is defined in your state’s tax code. Again, your state dept. of revenue should be able to point you to the proper rules.

Good luck; you’re dealing with Alphabet Soup so you’ll need it!!!

G.

[LauraKY]

It depends on the tax laws in your state. The buyer may be responsible for paying sales tax in his/her state if out of state. Time to consult a CPA.

If you do have to charge sales tax, it should come out of the buyer’s pocket.

I think you’re talking about income tax…again, best talk to a CPA.

[Calvincrowe]

I’ve never paid sales tax on a horse purchase in the states of WA or OR in 30 years of horse ownership (and 10 purchases up through high 5 figures). They aren’t licensed like vehicles…I suppose they are “income” and should be reported to the IRS and I assume the IRS could come after you if they audited you. Maybe.

[horsepoor]

I have paid sales tax on horses purchased in WA state, where I live - we do have a sales tax similar to what OP describes (maybe you are in WA?), and I only buy geldings so they can’t qualify as being for breeding. In the cases where I have paid, it was part of the contract and I was buying through a WA based agent or breeder. I kind of got the impression WA dept of revenue had gone after some of the agents/breeders so that is why they were including it in all deals. If you check some of the bigger WA sale barn websites, they will explicitly state that buyer is responsible for the sales tax.

Now, had I been a resident of a state without sales tax, say Oregon, and purchased from WA, I would be exempt from paying the sales tax. Not sure how it works if I, WA (sales tax state) resident buy from a non sales tax state – I probably would owe it according to WA DOR but unlikely they’d know about the transaction being out of state, so would fly under the radar, just like everyone buying large goods across the border in OR to avoid the WA tax.

[horsepoor]

Here’s for the Wa state dept of revenue website re/sales tax and horse sales: http://dor.wa.gov/content/doingbusiness/businesstypes/industry/Horse/default.aspx

[SportArab]

The seller is by law required to collect sales tax if there is one in the state. If the horse is sold out of state it can be avoided depending on certain conditions of the sale.

[JeanM]

If you are not in the business of selling horses, I would look into whether your state has a “casual and occasional” sale policy. This is for non-retailers, who are not actually in the business of raising &/or selling horses (or other types of property). This policy means that sellers who are not actually in the business of buying or holding inventory and selling it at retail are not “retailers” required to collect sales tax.

[Equibrit]

Tax is charged on retail sales only in my state. Selling your private property is not a retail sale.

Most of the law on sales tax relates to the running of a business involved in retail sales. Normally in business you are not required to pay sales tax when you buy something for resale, and you can deduct from your income any expense involved in warehousing that item. You would then price that item taking all costs in to account, add a profit, and charge sales tax on the full amount. That way the tax man gets more, and you get back all your investment, plus profit.

None of that applies to a private person and would be way to complex for the average person to account for, so they don’t.

[Calvincrowe]

What Equibrit wrote is what I’ve always heard. Horsepoor’s good response is an example of that. If you are an owner selling a horse privately I’d not expect sales tax to figure into the equation. If the DOR/IRS starts collecting on horse sales, then every private sale of anything would come under that.

[SportArab]

I’d check with an accountant on that. While it is true that most people involved in these “casual sales” don’t collect sales tax I suspect that is not in line with the law. It’s just too hard for states to monitor. If you sell a car privately, sales tax gets collected. Easier for the state to monitor because you need to report the sale to register.

[MysticOakRanch]

Sales tax laws are STATE laws, so every state is different. Coming to a bulletin board like this is not a good idea for several reasons (1) every state has different laws (and some have no sales tax at all) (2) many people violate the laws of their own state, and just haven’t been caught!

I am in California, so I can only speak for my own state law - and yes, horse sales (except Race Horses) are subject to sales tax. The SELLER is responsible for collecting and remitting that tax. If you are running a horse business, you are suppose to have a Sellers Permit, and depending on the amount of sales, you will report and remit annually or quarterly. If you don’t have a business, you are suppose to report it on your state income tax return at the end of the year.

In California, almost any kind of tangible good except food items are subject to sales tax. There are a few exceptions (such as race horses - they obviously had a good lobbyist).

Since the seller is responsible for collecting, some of us just pay sales tax out of the sales price - most of my buyers never know that about 8% of what they paid me goes straight to the state.

Your best bet is either (a) wade through your own State’s sales tax laws (in California, those are State Board of Equalization laws), or (b) consult an accountant. Or © hope you don’t get caught:lol:

[horsepoor]

These kind of questions always seem to have two different lines of inquiry – one is what is the law? (easily answered by contacting your home state department of revenue) and the other is, what can I get away with? I think most people asking on COTH don’t want the former question answered, just the latter.:lol:

Here in WA, we are really supposed to pay sales tax on all sorts of things that people don’t realize (or don’t want to recognize)-- and since there is no way to track it on many things, it doesn’t get collected. Items purchased and brought in to WA from out of state are supposed to still be taxed (use tax instead of sales tax, but same rate) but rarely is that ever paid. The state can track things like cars and trailers since they have to be registered/licensed with the state, but not so easy with refrigerators, bicycles, etc. (or horses!).

[dressagetraks]

I remember in reading Wild Ride about the Calumet Farm rise and fall that the long-time secretary once got into a standoff with J T Lundy over sales tax on horses. Lundy was selling to a buddy and thought stuff like that didn’t matter, at least not in a deal to a buddy. Secretary stuck to her guns and finally called Kentucky Department of Revenue, who agreed that sales tax did apply. Later on in the book, after the secretary was fired, the farm was sued by the Dept of Rev over unpaid sales tax related to horse deals.

[MysticOakRanch]

[QUOTE=dressagetraks;8191522]
I remember in reading Wild Ride about the Calumet Farm rise and fall that the long-time secretary once got into a standoff with J T Lundy over sales tax on horses. Lundy was selling to a buddy and thought stuff like that didn’t matter, at least not in a deal to a buddy. Secretary stuck to her guns and finally called Kentucky Department of Revenue, who agreed that sales tax did apply. Later on in the book, after the secretary was fired, the farm was sued by the Dept of Rev over unpaid sales tax related to horse deals.[/QUOTE]

Yeah, I know of two other big breeders in Cali who got caught not paying appropriate sales tax (and a few other taxes) - both were several years back, but in both cases, once caught, it “cost them the farm” so to speak. One actually went to jail - it was more then sales tax, it was also income tax, blatant tax evasion and it was big dollars. The other couple just had a lot of money they owed, and it took them several years to pay it back.

Reality, for a single sale, you are probably going to get away with not reporting it. Unless someone doesn’t like you and does an anonymous tip.

[F_Alter1]

Thanks everyone for the thoughts and advise. I’m not really trying to skirt the taxes here, but it is helpful to understand the level of risk involved because it seems like the laws I have found for my state really seem to be referring to those that sell horses as a business.

So there are two taxes involved and I’m still sorting out which I am responsible for.

1. Sales tax. This I can find the law specifically for my state which says it is required for all breeding animals and must be paid by the seller. Now, if the buyer is from a tax-exempt state, my assumption is that this does not apply, just as it would be if they came to my state to purchase anything else.

2. Income tax. It seems that at a federal level you are required to report the sale as income, but can also itemize related expenses under Hobby expenses. Therefore, I report the $25k as income, but I can deduct the board/training expenses, vet expenses, original purchase price, and feed expenses for which I have receipts which should effectively negate almost all the income.

I’ll of course confirm this with an accountant when I do my taxes next year if its not self-explanatory in my tax software, but I really appreciate the advise to help me understand what the expectation is for this type of situation!