How did Texas tax jewelry trade-ins, including a customer trading a higher-value ring for a lower-value watch and receiving cash back?

Plain-English summary

A jewelry business sold and manufactured jewelry and bought or sold old gold, metals, and stones. The Comptroller treated the described exchanges as trade-ins rather than barter when the accepted item was the same type of merchandise the business normally sold. Sales tax applied to the remaining balance after the trade-in allowance.

“Like item” did not mean identical. A ring could be traded for a necklace, or a watch for earrings, if the store regularly sold the items accepted in trade. A fur accepted against a diamond ring was different: the store owed tax on buying the fur and charged tax on the ring's full selling price.

In the specific example, the customer traded a ring valued at $9,000 for a $7,000 watch and received $2,000. Because the store regularly sold rings and the customer provided no other consideration, the letter found no taxable transaction and no tax consequence from the $2,000 payment to the customer.

What this means for you

Trade-in treatment depended on whether the property accepted was merchandise the business normally sold. A mismatched item did not reduce the taxable sales price.

Common questions

Did a qualifying trade-in reduce the taxable amount? Yes, tax applied to the balance after the allowance.

Did “like item” mean the exact same item? No.

Was the ring-for-watch transaction taxable when the ring was worth more? No under the stated facts.

Could old gold, metals, or stones be bought under a resale certificate? Yes, when bought for resale in the regular course of business.

Citations and references

The letter did not cite a statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1099C03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller April 8, 1991

Dear **:

Thank you for your letter regarding sales made with a trade-in,
barter trade, and the purchase of old gold/metals/stones when no
sale is made.

According to information in your letter, **
sells jewelry, buys/sells old gold/metals/stones and manufactures
jewelry.

Each situation presented in your letter is considered to be a
trade-in for sales tax purposes. You are not considered doing
barter trade (for sales tax purposes) as long as the item being
traded in is of the same type merchandise you normally sell in the
business. Your business should collect sales tax on the balance
due after the trade-in is deducted.

Acceptable trade-ins are like items which are normally sold in the
regular course of business. Like item does not mean exact item,
i.e. a trade-in of a ring for necklace or watch for earrings is an
acceptable trade-in for a jewelry store which regularly sells the
items taken in as trades. If a jewelry store accepted a fur as a
trade-in on the purchase of a diamond ring, sales tax is due on
the purchase of the fur, and sales tax is due on the selling price
of the diamond ring.

The situation presented in your letter described as: **
wants to buy a new watch for $7,000. He has a diamond ring
that we are willing to buy for $9,000. Do we charge sales tax on
the price of the new watch or pay him for the difference between
the old ring and new watch? RESPONSE: Because ****
regularly sells rings which are traded in and because no other
consideration was given by the customer, this is not a taxable
transaction. There also is no tax consequence on the $2,000
tendered to the customer.

A properly completed resale certificate may be issued when a
jewelry store buys old gold/metals/stones to be resold in the
regular course of business. The items are taxable at the time of
purchase unless purchased for resale.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions or need additional information, you may
call me toll free at 1-800-252-5555, extension 5-0330. The
regular number is 512/463-4600, or write me at Tax Administration
Division.

Sincerely,
Bettie U. Peterson
Tax Administration Division