Some sales, transfers, and leases between a business and its owners or related parties are exempt.
Change in the form of a business
Transfer of motor vehicles is exempt if a business changes its entity type and the ultimate ownership of the property is substantially the same.
- A sole proprietor forms a new LLC that the sole proprietor wholly owns. The transfer of motor vehicles to the new LLC is exempt.
- A partnership incorporates, and the ownership of the business doesn’t change. The transfer of motor vehicles to the new corporation is exempt.
Form ST-133CATS – Sales Tax Exemption Certificate – Capital Asset Transfer Affidavit and Instructions, when registering the motor vehicle. Sale of an ongoing business (bulk sale)
Motor vehicles included in the sale are exempt if a business or its separate segment is sold and all of the following apply:
- Substantially all the operating assets are included in the sale of the business or its separate segment.
- The new owner will continue to operate the business in the same manner.
- The motor vehicles are titled and registered in the name of the existing business at the time of sale and then titled and registered in the new business’ name.
Note: The seller must have separate accounting records if it’s a sale of a separate segment.
The buyer must provide a completed Form ST-133CATS – Sales Tax Exemption Certificate – Capital Asset Transfer Affidavit and Instructions, when registering the motor vehicle.
Transfer of capital assets between related parties
Sometimes owners, partners, shareholders and stockholders in related-party businesses transfer title and ownership of motor vehicles.
A transfer of a motor vehicle to a related-party business that isn’t a corporation is exempt from Idaho tax if both of the following are true:
- The business transferring the motor vehicle has proof tax was paid when the motor vehicle was acquired.
- The parties exchange nothing of value other than an increase or decrease in equity (e.g., stock or securities).
A transfer of a motor vehicle between corporations that are related parties is exempt if both of the following are true:
- The corporation transferring the motor vehicle has proof tax was paid when the motor vehicle was acquired.
- The two corporations exchange nothing of value other than an increase or decrease in equity (e.g., stock or securities).
For this exemption, “related-party” corporation means the transfer is between one of the following:
- A corporation and its subsidiary, and the parent owns at least 80 percent of the subsidiary.
- Two subsidiaries that share a common parent, and the parent owns at least 80 percent of both subsidiaries.
The business that owns the motor vehicle after the transfer must provide a completed Form ST-133CATS – Sales Tax Exemption Certificate – Capital Asset Transfer Affidavit and Instructions, when registering the motor vehicle.
Sale of capital assets to related parties
Sometimes owners, partners, shareholders and stockholders of businesses sell or lease motor vehicles to a business that a related party owns.
Sale of a motor vehicle that’s a capital asset to a related party might be exempt if one of these is true:
- The seller has proof sales or use tax was paid on the motor vehicle when it was acquired.
- The seller bought the motor vehicle from a related party, and the related party paid tax when the motor vehicle was acquired.
For this exemption, “related party” means one of the following:
- The selling business has identical ownership as the buying business.
- At least one owner of the business that sells the motor vehicle has one of the following relationships with the owner of the buying business:
- Parent and child
- Grandparent and grandchild
- Brother or sister
The buyer must provide a completed Form ST-133CATS – Sales Tax Exemption Certificate – Capital Asset Transfer Affidavit and Instructions, when registering the motor vehicle.
Leases or rentals of capital assets to related parties
A lease or rental of motor vehicles to related parties is exempt if the lease or rental is between related parties.
For this exemption, “related party” means one of the following:
- The lessor business has identical ownership as the lessee business.
- At least one owner of the business that sells the motor vehicle has one of the following relationships with the owner of the buying business:
- Parent and child
- Grandparent and grandchild
- Brother or sister
Otherwise, the lease or rental is taxable.
- Tax is due on a reasonable lease or rental value.
- The lessor must get a seller’s permit, collect Idaho sales tax on each lease or rental payment, and forward the tax as required. (See the Idaho Business Registration guide to learn more.)
The type of lease or rental determines when the lessor collects tax
Motor vehicle leases and rentals fall into three general categories:
| Type of lease/rental | How the lease/rental works | When to collect sales tax |
|---|---|---|
| Basic lease or rental | The customer returns the motor vehicle to the lessor at the end of the lease or rental term. | Collect sales tax on each lease or rental payment. |
| Lease or rent with option to buy | The customer has the option of buying the motor vehicle during the lease or rental term or at the end of the term at fair market value. | Collect sales tax on each lease or rental payment and on the price the customer pays when buying the motor vehicle. |
| Lease/rent and purchase | The customer makes regular payments during the lease or rental term. At the end of the term, title to the motor vehicle passes to the customer for $0 or an amount that’s less than fair market value. | The customer will own the motor vehicle at the end of the lease or rental term, so this is a sale and a financing arrangement. Collect sales tax on the sales price of the vehicle at the beginning of the term, when the sale is made (the contract is completed). |