Sales Tax on the Equipment When You Sell

The Rule in Plain Terms

Oklahoma law says that when a business is sold, sales tax is due on the sale of its fixtures and equipment. The state does not have a general exemption for the occasional sale of a whole business, as many other states do.

Bills to add one have been filed in recent years, but we have not seen one become law. Treat the equipment as taxable unless your CPA tells you otherwise for your deal.

Oklahoma also presumes that all sales of goods are taxable until someone shows they are not. In practice, that means you need paperwork for anything you treat as exempt.

How Much It Can Be

The state rate is 4.5 percent, and cities and counties add their own. In most of Oklahoma City, the combined rate is 8.625 percent. Suburbs and rural areas have different rates.

On $400,000 of equipment at 8.625 percent, the tax would be $34,500. That is real money, and it needs a line in the deal.

Who Pays It

The law treats the tax as due on the sale, and the Tax Commission won't issue the buyer a permit until all of the state's tax claims are settled. Buyer and seller usually agree in the purchase agreement who covers it.

Often the buyer pays the tax on top of the price, as with any purchase. Sometimes it is split or built into the price. Settle it in the letter of intent so it doesn't turn into a fight at the closing table.

Inventory Is Different

Inventory the buyer will resell, like parts on the shelf or products in the warehouse, is usually treated as a sale for resale. The buyer gives you its sales tax permit information, and the inventory isn't taxed at that point.

Keep that paperwork in your closing file. If the Tax Commission later asks why inventory wasn't taxed, the buyer's resale documentation is your answer.

Vehicles and Trailers

Trucks, trailers and other titled vehicles are handled through the title transfer at a tag agency, where motor vehicle taxes are collected when the buyer registers them. They are usually listed separately from the other equipment.

For companies with large fleets, like towing companies, the vehicle line can be the biggest single number in the allocation.

The Allocation Matters

How you split the price among equipment, inventory, goodwill and other assets changes the sales tax, your federal taxes and your Oklahoma capital gain deduction. A higher equipment value raises sales tax. A higher goodwill value does not.

Use a fair value for equipment. An appraisal is a good idea for shops with expensive machines, like machine shops. Values that look too low to the Tax Commission can be challenged.

The state tax side of the allocation is covered in our guide to the Oklahoma capital gain deduction.

Equipment You Keep or Sell Off

Not every asset has to go to the buyer. Owners often keep a truck, a piece of land or equipment they plan to sell on their own. Make a clear list of what stays with you, so it isn't counted in the sale.

Selling leftover equipment later, outside the main deal, is its own sale. Ask your CPA how it will be taxed before you plan on that cash.

Closing Out Your Permit

Your sales tax permit stays with you. It is not transferable, so the buyer applies for its own. When you sell, you file a final sales tax report marked as a discontinued business, pay what is due and return the permit for cancellation.

Skipping that step can block you from getting a permit later and can hold up the buyer's permit too. Our guide to Tax Commission clearance and successor liability covers that part of the closing.

Your CPA should confirm the treatment for your specific assets. For a sense of value first, use the valuation form or call (405) 555-0158.