Any Questions for a Car Dealer?

driftracer · October 2003

it's asking the dealer to falsify state tax information, collecting (or not collecting) sales tax on a car they didn't sell.

mackabee · October 2003

At my dealership we call it "stealing" and we don't do it at all.
: )
Mackabee

isellhondas · October 2003

But you would be surprised at the number of customers who ask us to do this!

jratcliffe · October 2003

Still, this seems like it's a defect in the law. If you can net out sales tax on a trade-in + purchase, then you should also be able to net it out on a private party sale + purchase, within some time limit, say 14 days.

mark156 · October 2003

I had no idea that it was illegal to do an "in and out". I was going to ask the dealer to do that for me if I sell my car to my brother when I buy a new vehicle. A friend did it recently when he sold his '98 Lexus ES300 to a co-worker for a new 2002 Mercedes C240. The Mercedes dealer had no problems at all doing it and charged a small fee of about $200 for the paperwork.

I don't want to do anything illegal but I hope they will help me for a small fee.

Mark

rivertown · October 2003

I've also seen it called a 'pass through' on the boards; and, heretofore, the hitches voiced have been that there's no money it in for the dealer and that the F&I guy's numbers take a hit.

It can't hurt to ask. Methinks you'll find a dealer who can handle it, if it's a deal breaker.

steine13 · October 2003

.. why should this be illegal?

Customer A trades car to dealer for $5000, dealer owns car, A realizes tax advantage.

Customer B buys car from dealer for $5000 + (negotiable), Customer B owns car.

Where is the difference between B brought in by A, and B walking in off the street six weeks later?

Of course, there has to be enough money in it for the dealer to cover any expenses. It's a hassle. But from where I sit, the business of dealing cars is ONE big hassle, intending no disrespect.

-Mathias

jwilliams4 · October 2003

Seems to me this could expose the Dealer to additional expense if something goes wrong with the car. Say the car is out of factory warranty, and two weeks after the $200 "Pass Through" the tranny fails. Some state laws require that the dealer give a minimum 60 day warranty on any car they sell... Could be an expensive favor...

driftracer · October 2003

the new owner of the new car gets a tax advantage because of the difference in sales tax - paying sales tax on the whole price of the new car or paying sales tax on the adjusted price after a "trade".

The dealer has to lie to the state because they really didn't take the car in trade, giving the owner legal tax benefit -

If the dealer is ever audited (likely) and it is discovered that they really didn't take the car in trade, penalties are serious (in any state).

rroyce10 · October 2003

....... Hmmm, how can I say this ... It's a, no, no I can't say that, it's aah, aaah no, no I don't want say that .. uummm' let's just say, there is some possible potential maybe some problems that Al Capone had to deal with ... If ya know what I mean ...

-- besides, I tried to email you and you bounced back ...

Terry.

dbgindy · October 2003

Terry is right ( as usual O sage one). Uncle would see that and it would want him/her to dig deeper. No dealer wants that ( not even for a quick couple of hundred for just paperwork).

Duncan

stebu · October 2003

But, I wholeheartedly agree with jratcliffe, it's a BAD law, at least for the consumer. I'm continually dealing with the issue since I usually curb rather then trade my vehicles. The way it's set up now, the government can legally double dip the tax on car sales. It's ridiculous.

Making the situation worse is the minimum tax rules associated with a private party vehicle purchase. In this case, there is no upper price limit on which to base the sales tax. But, you'll never pay a tax based on anything less then some book trade value. I'm not sure which book they use in MA, but it has left me paying a tax based on a value higher then I actually paid for the vehicle. As all the regulars on these boards know, that is not a difficult position to find yourself in if you buy a vehicle with any blemishes or maybe just strike a particularly good deal.

It's not as if the states aren't making money on these transactions beyond the sales tax. Here, there are any number of title and registration fees associated with putting any new or used vehicle on the road.

I too, believe that everyone should be able to credit for tax purposes a private sale, and not just a trade, towards the next car purchased. I would even be amenable to the idea of a 30 day or other time limit to exercise the credit. Me thinks it might be time for an automotive "Tea Party" in Boston harbor. We could start with used Aztek's or something... ;-)

stickguy · October 2003

dealers don't do it for the paperwork fee. They do it to get the deal done.

I would think that if the paperwork was done correctly, there would be nothing for the feds to find. They write up a normal sales deal with a trade in, and do a separate sale contract to the new buyer. Just the same as if I walked in off the street and bought the trade right after it was done (and I saw this happen once).

The liability issue is another story, if the dealer doesn't do normal due diligence to make sure the car was safe, etc. But that's the dealer's problem.

audia8q · October 2003

I love watching people try to justify cheating and crooked behavior.

driftracer · October 2003

a fake stock number, a fake service prep sheet, a fake detail sheet, a fake newspaper ad with the car in it, or whatever -

Without those other documents, it would be very easy for an auditor to see that the car really didn't belong to the dealer.

All for saving someone tax money, with little or no benefit to the dealer?

Why?

Aren't the same consumers who say it's OK for the dealer to lie and cheat in order to save someone $200 in taxes, the same folks who'd burn the place down like people with torches searching for Frankenstein if the dealer made a mistake on some paperwork or left the oil change reminder sticker off the windshield??

rivertown · October 2003

To make money and build a business, of course.

Here, sales tax is 8%, which comes out to $800 on a $10K private sale. The dealer doesn't want a taste of that and two satisfied customers in the place of one? Yeah, right.

It doesn't really matter, though. Even at our high 8% and with no 'in and out', both the buyer and the seller come out better with a private sale until the used price tops $10-$12K.

stebu · October 2003

Of course, there would be no ad. But, wouldn't the rest be legit whether the dealer owned the car for 10 minutes or 10 days?

The "Why?" is of course a legitimate question.

I can only guess at any dealer benefit. Maybe their making some spiff on a new car that offsets any mini deal or fee on the used vehicle.

But let's assume for the moment the dealer makes enough from the transactions to warrent acting as the go-between, and the seller saves enough on sales tax to benefit himself and still give his buyer a decent deal. Everyone crosses the t's and dots the i's. Is it legal??? Or does it, as you profess, require a lot of cheating (i.e. law breaking, not simply questionable business practice) on everyones part? Just curious.

spektre · October 2003

1) Quite a can of worms I opened - but it's nice to see active discussion!

2) I had NO idea this was in any way illegal - my dad has done it with every one of his new car transactions for the past 30 years.

3) After reading through various posts, I think it shouldn't be illegal (and I'm not so sure it is) and that the only problem that could arise is dealer liability for the used car - but that could be alleviated with the correct 'warranty' (as is) and depending on state law for used cars.

4) Any aspiring attorneys out there that want to dig up some genuine law documentation for or against this?

AudiA8q - please explain how this is cheating and crooked behavior - it seems straightforward to me. I trade in a car - the dealer sells the car to a waiting party. What's the difference between that and trading in the car for someone to buy it a week or two later? Is there a specific time the dealer must hold the car? Are there criteria that must be met for a car to be a trade-in?

driftracer · October 2003

I worked for positively refused to do an in and out. They would not sell a car that they didn't own - it's their right and responsibility. They didn't want a car on the books, with liabilities involved, and no chance of recourse in a problem.

The other dealer I worked for did a couple of them, but as an F&I guy, I got the practice stopped after one of the deals backfired - the buyer of the "trade" (the new car buyer's old car) tried to sue us because there was problems with the vehicle - we DID sell it, after all, making the vehicle sale eleigible for all state and federal statutes governing automotive sales.

For no profit - none. Again, why?

spektre · October 2003

I want to buy a new car - I need to sell my old car. I can't buy the new car until I sell the old car. I find a buyer for my old car. I drag him to the dealership. The dealer makes profit on the sale of the new car. The dealer makes PURE profit on the turn around of the trade-in (the nominal handling fee - $200-500). No profit?

I agree about the deal backfiring - but that should be able to be prevented with the right legal/warranty/liability paperwork.

And again - what are the criteria for establishing ownership of a trade-in? What's the difference if I supply a buyer for the trade-in immediately vs. a buyer who walks in off the street a week later?

driftracer · October 2003

charged for an in and out - there was no profit.

I'm done arguing this - unless you've been sued, you wouldn't understand that it's crazy to take unnecessary risks with a business.

151ranch · October 2003

in Texas, to transfer title you don't even need a notary now. You go to the tax office, show the title was signed by the previous owner, and pay tax on what you say you bought the car for. So, you basically get a lot of people lying about how much the car cost. The only time I was asked for a bill of sale was when I brought in an out-of-state vehicle.

Now, if the state would give me credit for that sales tax, I would be very careful to put the correct transaction price on the title to ensure proper credit.

audia8q · October 2003

Joe blow motors does a "pass thru" for customer A...customer B buys the car. In most states the dealer MUST safety check the car to make sure its fit for the road and the brakes, lights, tires etc. are operating withing the limits of the law....fast forward to 2 weeks down the road and the pass thru car has developed a tranny problem.....the dealer is on the hook for this due to state law warranty requirements......who is paying for this??? customer 'A' will say to the dealer "you sold it, its your problem"...in the eyes of the law customer A is correct. Big liability potential for the dealership...

This is before we worry about the potential tax liability for the dealer...

unless the dealer is making a huge profit deal on you...there isnt any reason to get involved in the hassles. If your deal is a short profit deal and you walk the dealer still didnt really lose anything either.

OTOH...if I can mark up the pass thru car $500 plus the safety check fee, handle the financing and sell the guy an extended warranty we have a deal. I'm covered.

If somebody does not like the tax laws then vote and get the laws change...dont expect the dealer to do it "just because the rules dont fit your needs"

robr2 · October 2003

There's a fine line between tax avoidance and tax evasion!!

jratcliffe · October 2003

So really, it's not crooked or dishonest, it's just unprofitable? Fair 'nuff, that's a perfectly good reason for the dealer to refuse to do it.

This looks like tax avoidance to me, but not tax evasion.

audia8q · October 2003

sorry you didn't get my sarcastic tongue in cheek sense of humor.

If your one of the ones who thinks its accepteable to do something shady, fine...but at least we know where your coming from. It seems that its OK to cheat and not play by the rules as long as a consumer can benefit and the dealer can be left holding the bag.

driftracer · October 2003

never want the dealership to lie, cheat and steal - that is, unless it benefits the consumer and puts the dealer in harm's way.

spektre · October 2003

AudiA8q - since this is "Any Questions for a Car Dealer?" Just how much do you make on one of those extended warranties, and what happens to your profit when the buyer of said warranty cancels it for a full refund?

Also, what about a car that is still under factory warranty - no liability on the dealer there (and don't mention safety inspection - that's a state issue and so obvious as to be insulting - who would even buy a used car without a recent safety inspection?)

Which specific tax law is being broken? Is it not the law that I don't pay tax on the value of my trade in - I did pay tax when I bought it after all.

driftracer · October 2003

"what about a car that is still under factory warranty - no liability on the dealer there"

The fact that the factory warranty is on place doesn't keep it from having a mile of CARFAX entires for accidents, major body damage, water damage, salvage/reconstructed title, etc.

A dealership is a private business. If the dealer principal and managers decide they don't want to do an in and out, they don't have to.

Personally, I'd rather pass on a new car deal if I had to in and out the trade - a business can't be so desperate for business that it cuts its own throat.

spektre · October 2003

"A dealership is a private business. If the dealer principal and managers decide they don't want to do an in and out, they don't have to." I agree completely!

How hard is it to pull a Carfax report? Problem solved. You can also make sure the title is clean. This is like 'what if'-ing this issue to death.

The bottom line, as jratcliffe stated is fair 'nuff, it's just unprofitable - even when the risk can be mediated.

My question still stands though - "Which specific tax law is being broken? Is it not the law that I don't pay tax on the value of my trade in - I did pay tax when I bought it after all."

driftracer · October 2003

is that the deal did not go down the way it was represented to the state - it's a lie. I won't lie to make a buck. I won't lie to make someone else a buck.

The buyer of the new car gets an unfair tax credit by not selling his car privately and having to pay sales tax on the entire value of the new car. It's a lie - and worse than being willing to lie to the state, is expecting a business to conspire with you in your lie. End of discussion.

spektre · October 2003

but I understand completely that you no longer want to discuss it.

No one, myself included, is looking to get anyone else in trouble with the law or to break the law and not get caught.

At what point does a vehicle belong to a dealer? How long does the dealership have to 'own' a vehicle for it to become a trade-in? Because the seller is providing a buyer for the trade-in makes this illegal? Or is it something more insidious...

driftracer · October 2003

doesn't own the vehicle, makes little or no profit, yet is still liable for warranty and sales statutes, plus is liable if they're ever audited. Why is this so hard to comprehend?

It's stupid business for a dealer. There's no "up" side to it.

mirth · October 2003

...are waayyy into subtleties. Which is why you can't just go buy a loaded Navigator for your business and expect that $100K deduction. ;-)

robr2 · October 2003

My presumption is that as soon as you sign the title of your trade-in over to the dealer, they own it. As such, when they "sell" the car

they are held to whatever laws are applicable to the sale of a used car. Here in MA, that means Lemon Law, warranties, et al.

landru2 · October 2003

call the IRS and see how they would feel about it.

jratcliffe · October 2003

It's a state sales tax issue.

landru2 · October 2003

call your state tax department and see how they would feel about it.

better?

stickguy · October 2003

I think the simple answer is to treat it like any other trade in. As soon as the papers are signed, the dealer owns the car, and can do whatever they normally do with it. In this case, they have a customer waiting to buy it, so they sell it to him. If the normal procedure is to do a safety/condition check, do it (same as if you were going to put it on the front line). That way, I can't see any more liability than with any other sale.

The bigger issue with the taxes is why the heck do you get a tax credit trading it in, but not if you sell it yourself (especially if you can prove you bought a replacement car)? Of course, it is a political decision, and car dealers have a strong lobby...

driftracer · October 2003

that's just it - dealers do in and outs without marking up anything, running the car through service for several hundred (or many more) dollars as a service to the new car buyer.

It's free - that's why it's stupid. And illegal.

If the person was charged for running it through service, the tax advantage is overcome by money spent in service, so why do it?

jratcliffe · October 2003

Well, I think pretty much everyone here's right. I can't see how it's illegal (dealer takes a trade and sells it), but I can also see how it just wouldn't be worth it for a dealer, especially if they assume some implied or explicit liability for the car. Unless the $ value on the car is really high (a $40k trade-in, for example), the savings probably aren't high enough to make it worth it.

driftracer · October 2003

is that they're lying to the state about taxes - if audited, they're screwed.

Our "sweep in under the rug" and "oh, they won't mind" concepts don't work in an audit.

jratcliffe · October 2003

How are they lying? They took a trade from the customer, and then sold that trade to another party. Would be the same thing if they had just signed the paperwork, and somebody walked up and said "hey, did that just get traded in? If so, I'll buy it for $X."

I'm talking out of school here, I must admit, but I certainly don't see how this would be violating the spirit or the letter of the law. Certainly, I can see how the liability issues might make it more of a hassle than the dealer wants to bother with, but I don't see that it would be illegal.

stebu · October 2003

...seems to have touched a nerve with the salepeople here. I'm not sure why. I think most of the people asking the questions aren't asking or expecting anyone to break the law.

"The buyer of the new car gets an unfair tax credit by not selling his car privately and having to pay sales tax on the entire value of the new car." - So, by this logic everyone who ever traded their car instead of selling it knowing it reduced their tax liability, is a lying tax cheat. It just doesn't make sense.

You guys say there is no upside. Fair enough. You know your business better then I do. But, as others have mentioned, it appears that some businesses have found it to be an acceptable method of handling trade ins for certain customers. How come?

And I still don't get the liability argument. How is the liability on the in-out any different then you would have buying and then selling any other car used car. Any used car you sell could have a failed transmission a week later. And never mind the "if extended warranty" stuff, assume no one gets it. It seems to me the main difference is you just don't hold on to the in-out's very long.

If all things considered, you still "choose" not to do it, whether it's due to extra paperwork hassle, or too mini of a deal... that's cool. I just don't see the "lying" by anyone that would be involved.

BTW, the IRS may very well see this whole issue in a different light. But, no one has indicated that they or some dealer they know has been penalized by the IRS for this practice. Sounds like more if's to me. If not, then enlighten us with a specific example.

robr2 · October 2003

I think the liability issue is this: If the dealer did an in and out as a favor to a customer, the dealer is responsible for whatever warranties, inspections, et al that are required by law. The trader, the dealer, and the buyer all know how the transaction occured but it's not written down anywhere. Technically, the trader can say "I traded it in to ABC Motors" if there is a problem and walk away. So the dealer who was a nice guy all of a sudden is responsibile for a new transmission.

I live in MA as well and know the deal with the sales tax. I think the majority of states does the same thing with the tax credit on trade ins.

jratcliffe · October 2003

I think we all agree that the liability issue (as you clearly described) is valid, and, were I a dealer, that would probably make me unwilling to do one of these deals. That being said, they don't appear to be fraudulent, just unprofitable. Again, that's a perfectly fair reason not to do them.

driftracer · October 2003

as to whether an individual with no ties to a particular business thinks that business should do business in a certain way.

As a manager, I'm responsible for every aspect of the operation and the impact our operation has on everyone we contact.

I couldn't begin to care less what someone thinks we should or should not be doing. If we operate within the confines and statutes as required, we have nothing to worry about.

isellhondas · October 2003

We have explained the situation several different times. No "nerves" have been touched.

It is a VERY murky thing to get involved with.

A lot of liability for a dealer who is basically helping someone not pay taxes.

jratcliffe · October 2003

Folks (drift, isell, etc.), I had no intention of telling you how to run your business - if you don't want to do these deals, that's TOTALLY at your discretion.

driftracer · October 2003

is my point exactly - thank you.

I don't care if we lose one deal or ten deals over not doing these "in and outs". Getting ripped up by an auditor and having the dealer's name drug through the papers is a sure way to lose HUNDREDS of customers.

I've seen a dealership tax audit - they ain't pretty, even when the dealer thinks they've done everything right.

Any Questions for a Car Dealer?

Comments

Helpful Tools

Most popular vehicles