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Include local sales tax when determining Fair Market Value for Taxable Fringe Benefit?

Hi all, searched the archives, and unless I missed it...I could use your expertise.

Employees received a tangible gift that we need to add the value of to their W-2 wages as a Taxable Fringe Benefit. Do we include local sales tax in determining FMV? I think not, and have always used just regular retail (arms length transaction). Would appreciate any input from the group.

corie

Comments

  • David WarrenDavid Warren ✭✭✭✭

    I would say that yes you include sales tax. FMV is determined several ways, depending on the circumstances. The default is what you actual paid for it or what it cost to replace it. Both of which includes sales tax. What is your argument that sales tax should not be included?

    Now if we are instead looking at giving someone an old computer, the current FMV of the old computer is almost certainly much less then the purchase price. A house on the other hand, purchased 20 years ago is almost certainly worth much more then the purchase price.

    corie
  • Thank you David. There are so many variables to sales tax, which was my thinking.

    From IRS, Publication 15-B:
    General Valuation Rule.
    You must use the general valuation rule to determine the value of most fringe benefits. Under this rule, the value of a fringe benefit is its fair market value. The fair market value (FMV) of a fringe benefit is the amount an employee would have to pay a third party in an arm's-length transaction to buy or lease the benefit. Determine this amount on the basis of all the facts and circumstances. Neither the amount the employee considers to be the value of the fringe benefit nor the cost you incur to provide the benefit determines its FMV.

  • David WarrenDavid Warren ✭✭✭✭

    " the amount an employee would have to pay a third party in an arm's-length transaction to buy or lease the benefit" generally includes sales tax.

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