We each got $1100 this year, yes. A few years ago we each got $1973, but with the economy down and all, the PFD's are looking like they will go away.
The term for Alaskans that have been here forever (or many, many years) is sourdoughs.
Living in Alaska isn't always easy, but it does have its good sides. Although last week we finally got some snow (about 3 inches) and now its 40 and melting, raining in Fairbanks, roads are horrible. Looks to be a repeat of last year, sure glad I invested in good snow/ice tires.
i know this has been beat to death, but if the title never goes to the dealer, how can the dealer claim ownership of the trade in to collect sales tax on the sale of the trade in?
"1. Used car owner sells car A directly to friend for $10000. Friend pays 8 percent ($800) sales tax to state. Used car owner then buys new car from dealer for $24,000 using the $10K cash as down payment and pays $1920 to state in tax. Total collection for state = $2720."
Please correct me if I'm wrong, but I think your example only holds true in states that collect taxes on private sales--many states do not. In those states, the total sales tax collected is $1920 either way you do it. As long as fair market values are paid on both transactions, it doesn't matter.
6087- Terry repeated what I had manrioned in my post - the fact that the dealer would not have time to re-title the car, and more importantly, the selling price would match the trade price. Even in a fast turnover, the dealer is going to make SOMETHING on the used car. On an I&O, there's no dealer markup on the used car, and that will stand out to any auditor.
6096- The whole point of an I&O is to reduce the amount of taxes paid. If there's no sales tax on a private party sale, there's no reason to do an I&O, because the dealer would have to charge the aecond party the appropriate tax on the used car. The second party wouldn't go for the I&O if they have to pay tax when they don't have to if they buy direct from the original owner.
The whole situation only applies where a state collects sales tax on all vehicle purchases and allows a tax credit on a vehicle-to-vehicle trade. If the state where you reside doesn't do both, than an I&O is irrelevant, and likely would never occur.
scipio--"The distinction is actually exactly what some people have mentioned, tax avoidance versus evasion, and the courts have judged that if the procedure is consistent with the law, the transaction is an allowable shelter."
I would tend to agree. Just because there is a loophole, it is not illegal to exploit it. The huge SUV depreciation tax savings was enacted by congress for farm equipment, not luxury SUV's and it cetrtainly wasn't intended for doctors and lawyers, yet it is being used to write off depreciation on these vehicles.
kcram--"She and the other agents in her office are pros at this (my sister has 15+ years of collection experience, both bank credit and tax), and they have yet to be fooled by anyone." How do they know that for sure? The ones that have gotten away with it have not been caught, so how would they know if they caught them all? Simple logic.
I also found your comment "The illegality is the intent, not the actual transaction." interesting. As I alluded to above, trying to avoid taxes is not illegal. If I buy a home and claim a tax deduction on the interest, is it illegal of me to buy the home only to lower my income taxes? Same holds true for the in and out. If it is not illegal for me to trade a car in ( and get a tax savings) and it is not illegal for the dealer to sell that trade in at whatever price they want to, I see nothing illegal about combining the two. It is not the govt's business where the buyer of the trade comes from, a walk on to the dealers lot or the new car buyer brings them with them. Is it illegal for me to buy merchandise in one county over another because they have a lower sales tax?
Your example was very good, but that type of transaction takes place everyday. People trade in cars and get a tax savings. The state losses that tax revenue. Why do you think the laws are written that way? Is it to punish the private seller?
royce--you gave a good example too, but I had a question. Could the in and out be structured so that the dealer gets possesion of the trade in title and then the used car buyer buys it from the dealer? That way all of the paperwork would be in order. The used car buyer would buy the car from the dealer but may have to wait a week or so for the title to clear, etc. Would that allow for the paperwork to be processed the same as if it was not an in and out?
I would tend to agree. Just because there is a loophole, it is not illegal to exploit it. The huge SUV depreciation tax savings was enacted by congress for farm equipment, not luxury SUV's and it cetrtainly wasn't intended for doctors and lawyers, yet it is being used to write off depreciation on these vehicles.
And it's this abuse or unintended benefit that usually gets such loopholes closed.
kcram--"She and the other agents in her office are pros at this (my sister has 15+ years of collection experience, both bank credit and tax), and they have yet to be fooled by anyone." How do they know that for sure? The ones that have gotten away with it have not been caught, so how would they know if they caught them all? Simple logic.
I never said they catch you immediately my sister has collected on tax delinquencies that go back years, sometimes more than 10+. All it takes is one discrepancy to trigger an audit/inbestigation that will go back MANY years.
Is it illegal for me to buy merchandise in one county over another because they have a lower sales tax?
no, but that's not what is occurring with an I&O. With an in and out, you're using a third party (the dealer) to reduce the tax hit on a transaction that the business is doing as a favor to a customer. As Terry and I both mentioned, there are procedures that have to be followed when a dealer takes a car in trade, and the dealer is also on the hook for any warrantable responsibilty. And again, the red flag would be the used car would "coincidentally" be sold for the same price as the trade value. No reputable dealer will sell a used car that they have to stand behind by law without any profit. If the car isn't worth it, they auction it. If it's a wanted vehicle, they'll sell it for as much as they can, not what they paid.
The customers involved with an I&O are not the ones the state would go after. The dealership is the one who will be questioned, because the dealership is a licensed tax agent for the state (as is any other retailer who collects tax on what they sell). In my chiropractor/insurance example I mentioned, the doctor would be the one charged initially as they were the ones collecting the unearned payments. It would then be up to the doctor to name the patient as conspirator.
Mass, your poiints are well-taken, but you're looking at it from the consumer's point of view. You just see it as saving money. The business person can't look at it that way - they have more to lose.
"Mass, your poiints are well-taken, but you're looking at it from the consumer's point of view. You just see it as saving money. The business person can't look at it that way - they have more to lose."
You are right. That is the only view I have since I do not own a car dealership. I agree with you that the liability would be the deal breaker for me, if I were the dealer.
Would it make a difference to the dealer if the new car buyer were buying a hot seller that they are going to make thousnads on? I know you guys will say it does not make a difference if your view point is illegal, but would the dealer be more willing to at least look at the in and out with a lot of profit on the line?
Again, can't the deal be structured over a longer time period for title concerns, or is the price being the same the kicker?
........ **Could the in and out be structured so that the dealer gets possession of the trade in title and then the used car buyer buys it from the dealer? That way all of the paperwork would be in order.**
That's a land mine waiting to stepped on .. once the title is in the dealers name, then sold ~ it better be supported by a *viable* tax ID# and a dealer license# number for re-sale if no taxes have been paid .... if the dealer does it with a regular retail customer, then the customer will have to pay taxes on it again, it just doesn't work out.
Once in awhile I will get someone that owns a large business, big builders, huge food franchises, the big hardware store down the street, whatever, and they will ask me - "Hey, I have a tax exempt number for my business, I will use that and you won't have to charge me the taxes, right .?" ~ Wrong.!
I just had a guy that owns 10 Wendys, and we wanted this 02 S430 Benz I had and that was his story "Hey the guy down the street will do it" .. Okay then, go down the street and buy a vehicle from him, cuz' I don't need to risk my business and be on the Radar screen for the next 5 or so years, all he wanted, was to save the $4,200 in taxes, he bought it and Paid the sales tax, that's cuz' there is no "guy" down the street that is stupid enough to do it ... see in a business, it IS the Govt's business and it's simple ~ don't &*#$ with their money and they wont have a "need" to &*#$ with your money ..l.o.l...
I've just finished scouring the ongoing conversation re: in/out transaction. One thing is clear; TAX is a four letter word to everyone. KCRAM has it right on the nose however(whether you like it or not). It's not a matter of what you're doing, it's why you're doing it (INTENT). The only reason you would drag your friend to the dealership to do the in/out is to AVOID the taxes. Not because you cherish his/her company while you do your deal. Repeat: INTENT is the issue(attempted murder above). That's why the transaction with the ex-girlfriend wouldn't be "illegal", because there was no intent on the boyfriends' part. It all falls under the definition of "tax motivated transaction" which basically says if the primary purpose of the transaction the way it is structured/executed is to avoid taxes, you're guilty of tax evasion.
The states that allow you to subtract the trade in value are merely accomodating the idea of "not double taxing" the same person on the same value (take it up with your state reps).
Dealers are right not to participate in the "sham transactions". They have too much to lose (and they will). To those of you protest that the dealers should do it, do you volunteer to do their jail sentence or cough up the penalties assessed by the taxing authorities (this is a state tax issue, not an IRS issue)? You are probably the same ones who doctor up their 1040's when April 15th rolls around (or do you not do it for fear of getting caught)? Laws are laws. Whether you like them or not is one thing. To break them, you risk punishment. You speed (who doesn't), you get ticket if you get caught. You evade taxes (some do, more want to)you can go to jail, and in dealers' case maybe lose their business. In any case there are choices. Most dealers fortunately prefer to stay out of jail.
The horse is taxed, dead, and buried. Let's move on.
I worked in computer support for a very large company. For several of these years I supported the Tax organization. A lot of these years I supported Tax Audit work.
Let me tell you how this generally worked, for this big company...
We had a state Tax auditor, from one of the large states, that was assigned for years to the company, in ONLY ONE AREA OF TAXES! She actually bought a house in town, that was how long she was assigned there!
She would take random samples of taxable transactions (that's where I came into the work). She would then investigate these samples for 'errors'.
When the 'errors' were found, she would then extend this 'error rate and amount of tax due' aganist the entire tax load for the company for this state for a year. This is the number the state then assessed to collect. Plus interest and penalities (since this was historical data, there was always interest and penalities).
So, extending this approach to a large auto dealership --- the auditor might only look at 100 car sales with trade-in. And decide that some amount of them looked like 'in-and-outs', with a loss of $$$ to the state. This error rate would be extended to all sales with trades for the year, and calculate the tax, interest, and penalities.
And auditors usually are covering more than one year. So, it's extended across the other years that are 'open to audit', with, of course, more interest because that is further back in time.
If the company doesn't come to an agreement about this, the audit can easily be extended back for additional years (unless these years have been previously audited and 'closed').
And, the company could expect to see the state auditor again next year, you bet!!!
Obviously, this is labor intensive. So the auditors only pick on the 'big boys', where the additional taxes assessed would 'pay' for the auditors claims. Smaller dealers probably would have less chance of seeing the auditor. But...., if they did come in, and found 'errors', this means they could be extended back a lot of years. It varies by state, but I would bet most states can easily go back for 10 years. And this is without saying any fraud was intended....
"I would tend to agree. Just because there is a loophole, it is not illegal to exploit it. The huge SUV depreciation tax savings was enacted by congress for farm equipment, not luxury SUV's and it cetrtainly wasn't intended for doctors and lawyers, yet it is being used to write off depreciation on these vehicles. "
You can't pick up a paper today without SUV being in the headlines, eg. "Motorcyclist killed in encounter with an SUV". Congress knew that SUVs were included and could have stopped this if they wanted. A couple of points:
1. This law tries to benefit the auto industry by getting business to replace vehicles more frequently. It has clearly worked. The auto inductry has suffered less in the last 3 years than some businesses, and Section 179 has played a role in this.Using the old method of depreciation, most businesses could deduct less depreciation than had actually occured in the real world. This put a "damper" on business spending.
2. Total tax deductions for SUVs are the same for Section 179 vs. non Section 179. The difference is that the deduction can come sooner. If you keep an SUV used in a Section 179 deduction for its useful life, the total depreciation will be the same. Eg., Section 179, deduct purchase price of, say, $20k the first year, $0 for years 2 - 5. Non Section 179 purchase, take $4k for each of 5 years.
Just ask any of the sales pros here that sell Navigators, X5s, Tahoes, Suburbans, etc. if they mind Section 179.
BTW, most small businessses have tax reduction and tax compliance on their minds all the time. You can debate if Congress should pass laws that influence behavior. But that's what Congress has done, is doing, and probably will continue to do.
"Is it illegal for me to buy merchandise in one county over another because they have a lower sales tax?"
Acutally in MA, it is. The sales tax rate in MA is 5% no matter which county - counties mean nothing here. We have tax free NH right next door. MA has always had a law that if you buy something out of state and bring it back to MA, you must pay the 5% tax if you didn't pay that amount in another state. Of course, it wasn't enforced. MA added to the 2002 income tax forms a line asking to you list out of state purchases you owe the tax on. Put a big zero there and sign the form when you did buy something in NH, it's tax evasion!!
What you say is true except that you forgot another possible incentive besides tax savings: a dealer's warranty. In most states, private party sellers may only be held liable for repairs to a vehicle they have sold if they KNOWINGLY misrepresented the condition of the vehicle, while dealers are usually responsible for repairing most problems that occur within some specified period of time or mileage. A minor point perhaps...
Sounds to me like MA might have some problems prosecuting those tax evasion cases because states are not allowed to interfere with interstate commerce. Taxing out-of-state purchases amounts to interference--that's why congress hasn't authorized states to tax internet sales yet (unless either the seller or buyer resides in, or has a substantial presence in, that particular state). However, I could see that MA could legally refuse to register a vehicle purchased out of state if taxes aren't paid. Another way around it is to call it a "Use tax" whereby one would be paying for the privilege of using the vehicle in MA.
MA never enforced it on general purchases because it would be an onerous task to actually do so. But automobile purchases are easily enforced.
As for interfering with interstate commerce - I'm not an expert but I believe that interstate commerce laws generally concern themselves with wholesale not retail. Further you can't forget about state's rights. Lastly, IMHO I think Congress hasn't gotten involved because they don't want to put the onus on the seller (ie Mom and Pop shops) and they have not figured out to get a cut of it!!
MA General Laws deem that the state can collect sales tax on the retail sale as long as an agent of the retailer delivers the product in MA. Can UPS, FedEx, or USPS be considered an agent? Also, don't forget about state's rights.
The main issue here is people travelling to NH to major retailers that are also in MA in order to avoid the tax or if the product is delivered in MA if the retailer has no MA presence. 5% on a $3K TV is worth the ride to many people.
I was talking to someone who says that his son had a 1995 Toyota 4Runner that didn't have seatbelts. He says that they weren't required because it was a truck. Did Toyota really make 4Runners in 1995 without seatbelts?
4Runner that had seatbelt. My husband's 1994 Chevy K3500 has seatbelts. Heck, so did his 88 F-150 and his 78 F-150. I don't think I've seen a modern vehicle that didn't have seatbelts. Somebody is blowing some serious smoke.
the US Supreme Court has already ruled that states can't tax out of state sales--yet they continue to do so. In Quill vs. North Dakota, the U.S. Supreme Court held that states cannot require out-of-state merchants without a physical presence in the state to collect and remit sales tax on sales made to residents in the state (1992)
"MA General Laws deem that the state can collect sales tax on the retail sale as long as an agent of the retailer delivers the product in MA. Can UPS, FedEx, or USPS be considered an agent? Also, don't forget about state's rights."
Using this logic, all one would have to do to avoid sales tax is have the car delivered by a car transporter service--unless you would consider Joe's Flatbed Service an agent (as you described).
"As for interfering with interstate commerce - I'm not an expert but I believe that interstate commerce laws generally concern themselves with wholesale not retail"
Wholesale, retail, doesn't matter. As an experiment, call Tire Rack and order some tires. I promise you that they won't charge you sales tax (provided you're not in the same state).
"I think Congress hasn't gotten involved because they don't want to put the onus on the seller"
Don't they almost always put the onus to collect taxes on the seller?
"don't forget about state's rights"
I haven't forgotten about states' rights. My question is whether or not they have any right to interfere with interstate commerce. As an example, consider what the State of Alabama has to say on the subject:
"Sales are considered to be made outside Alabama and cannot be taxed by the Alabama Sales Tax Law where: (a) The seller is required by the sales agreement to deliver the goods outside the state in the seller's equipment, or
(b) The seller delivers the goods to a common carrier or to the United States Postal Service for transportation outside the state regardless of any F.O.B. point, or
(c) The seller is required by the sales agreement to deliver the goods outside the state by the use of an independent trucker hired by the seller."
In essence, if you take delivery outside the state, you don't owe sales tax...
If that were true, all the car dealers in the state of washington would go out of business, because everyone would be buying in oregon. You can't register a new vehicle in the state of washington without paying the sales tax.
Unfortunately, consumers are definitely required to pay their home state's sales tax on vehicles that they purchase in states that do not charge any. The tax gets collected when they register their vehicle.
Yeah thats the crappy part isn't it. Thank goodness we do not have to register big screen tv's.
Not to beat the in and out horse to death, but I am confused by some previous posts. Everyone keeps talking about the dealer's liability of selling the used car to the private buyer. It was my understanding, in my state at least, that once a used vehicle was over the curb, you owned it, no recourse. Am I missing something here?
"Wholesale, retail, doesn't matter. As an experiment, call Tire Rack and order some tires. I promise you that they won't charge you sales tax (provided you're not in the same state."
I have and they have not charged me tax. But that doesn't mean I'm not required to pay it to the state myself. I have also ordered computers and was charged the tax - even without an in state prescence.
.... **in my state at least, that once a used vehicle was over the curb, you owned it, no recourse**
Since we have had 2/3 different discussions on 2/3 different topics here, I can see how you would get confused .. your a GA boy, right.?
Unless the -dealer- has a warranty on it, the vehicle get's the "balance" of the factory warranty, if any.
But as a rule, it's "As Is, where is" unless something is specified in the contract and/or the used sticker on the window which you get a copy of ... there's no 3 days, no come back in 6 months, this is also true for new, everything from there is based on the manufacturers warranty ...
But on rare occasions and good policy, I have taken a buyer out of one vehicle and put him in another, maybe the dog died, maybe his wife hates green with purple interior, maybe his wife is 4'8 and can't get into a Navigator and he "forgot" to tell her, so I put them into an Escape that she likes, but we are talking in hrs, not weeks ....
Situation: Consumer in MA buys something from a catalog retailer in Maine (LL Bean, for example). The Quill decision said that LL Bean doesn't have to _collect_ the MA sales tax on behalf of the state of MA, since Bean has no presence in MA. The Supreme Court DID NOT say that the consumer in MA isn't obliged to PAY the state sales tax on his purchase. Technically, you're supposed to pay the 5% use tax on your state income tax form, but nobody does - it's definitely tax evasion, but it's almost impossible to stop. The only reason that people have to pay the taxes on cars is that cars require registration, and the state can catch you there and make you pay.
ROBR2: "But that doesn't mean I'm not required to pay it to the state myself. I have also ordered computers and was charged the tax - even without an in state prescence."
Every state differs on how they deal with out of state purchases. You really need to do the research on whether or not your state requires you to pay it. As far as your computer, I'm betting you bought a Gateway or from a company that has "a substantial presence in your state". Try Dell next time (unless you live in TX).
PRODIGALSON: If you refer to my earlier post (#6109), I recognize the fact that you must pay sales tax if you register the vehicle in state. However, to use your example, lots of people buy and register vehicles in Oregon and later register them in Washington wihtout paying any sales tax. The trick is that you must have an Oregon address to do so (just one of the many reasons to buy a place on the Oregon coast!). By the way, states usually circumvent the Quill decision by calling the tax you pay at registration time something other than a "sales tax". For example, Hawaii and some other states have implemented a "Use tax". We all still call it sales tax...
CAR MAN: just because a state collects sales tax doesn't make it legal. It might just mean that it hasn't been challenged in court yet. Some states have been hammered for collecting taxes on vehicles purchased in other states. For example, Florida got slammed for charging an "Impact fee" that essentially served as a sales tax on all the cars brought into the state by part-time residents. They were forced to pay back fees collected.
The bottom line is that there is soon to be a major battle over interstate sales taxes. Congress knows it's going to happen in the internet sales arena, but they keep deferring the battle by declaring "moratoriums." They will be eventually forced to deal with this issue and the effects of the outcome will trickle down to other areas (like car sales).
Again, sorry for my longwindedness (is that a real word?)
.... **Florida got slammed for charging an "Impact fee"** ..... that's a State thing, not a dealer thing, they say collect it and we collect it ...
Remember, most States are "recriprocol" states .. if the guy is here in FL and the vehicle is going to be registered in NY/Oh/PA we pick up the difference ..
Terry: I think the earlier post from Mass was referring to the warranty issue (not being able to return the car). I thought the dealer could/did sell cars "as is". I can't believe that dealers are required by law to replace a tranny on a used car if it dies 2 weeks after the sale (assuming they weren't concealing a known defect). Covering a tranny repair was the theoretical being tossed around in earlier posts, thats why I used it.
Tax/audit/legal liability issues are obviously a different animal.
... **I can't believe that dealers are required by law to replace a tranny on a used car if it dies 2 weeks after the sale (assuming they weren't concealing a known defect). Covering a tranny repair was the theoretical being tossed around in earlier posts, thats why I used it.**
Ok, maybe I shouldn't be drinking Tequila at 7am ...
Nope you bought it, you own it.! Period.!
But ..! if the dealer has any brains, an IQ over 50 and want's to remain in business for more than 122 days, the he "should" get it towed in and have a Real Close look at it ... with that said, it depends on what's wrong with it, did the owner put 2,000 miles on it with oil light on ..? did they drive the vehicle in D2 for the last 455 miles through Oklahoma at 80mph .?
Me personally, I just get it handled unless there is something "hinky" about the customer .. but that's me.
I'm in Washington where we have a hefty 9.1% sales tax on all new and used cars. Everything else is 8.8%.
Once in awhile, we will sell a car to an Oregon resident. We require them to provide at least three solid documents proving they are OR residents. Driver's lic, utility bills, etc.
If, when we pull a credit report, they show ANY Washington residency, they pay the tax.
We do get audited and this is a sacred cow for the tax collectors.
A cabin on the Oregon Coast would be nice but it wouldn't save a person any taxes when buying a car.
... **We do get audited and this is a sacred cow for the tax collectors**
Same thing here in FL ... "Hey, I will just use my sisters address here in Florida, right.?" .. Wrong .l.o.l.. your current vehicle is registered in NY, your DL is from NY, your last mortgage payment is from NY, you just financed your new vehicle from NY, You just voted in NY ... aaahh, get it ..?!
Besides, I met your sister and her face would stop a clock, so no help there ......
"The Quill decision said that LL Bean doesn't have to _collect_ the MA sales tax on behalf of the state of MA, since Bean has no presence in MA. The Supreme Court DID NOT say that the consumer in MA isn't obliged to PAY the state sales tax on his purchase."
I'm no lawyer, but I must disagree with your assessment. First, Quill doesn't say that LL Bean doesn't have to collect the sales tax. It says that LL Bean MAY NOT collect the sales tax from North Dakota residents. The way I read it, the Court's purpose was to prevent states from shifting the tax burden to people outside their state. (It's always better to tax those who can't vote you out of office). The Court also sought to prevent states from interfering with interstate commerce by taxing interstate transactions. In short, Maine (ME) was prohibited from collecting sales tax from residents of North Dakota (and the rest of us for that matter).
As far as one's home state is concerned, I think Complete Auto Transit v Brady is one of the main decisions that apply. Your state can collect a sales tax at registration because the tax is "fairly related to services the state provides the taxpayer." However, some might argue that the tax violates another of the four prongs of CAT v Brady: "Does the tax discriminate against interstate commerce?" Maybe that's why many states play it off as a "use tax" rather than a sales tax...
Again, I'm no lawyer and I apologize for playing one here.
Sorry, but it's the other way around. ND was trying to compel Quill (an out of state retailer) to collect ND sales tax on purchases sent to customers in ND. The Supreme Court ruled that, since Quill had no physical presence (called "nexus") in ND, the state of ND did not have the "substantial nexus" required under the Commerce Clause for a state to affect interstate commerce, and hence could not force the out of state retailer to collect the tax.
Complete Auto is relevant to whether the state can compel residents to pay the tax on out of state purchases: the state can, and does, where those purchases can be easily tracked (such as cars).
>>As far as your computer, I'm betting you bought a Gateway or from a company that has "a substantial presence in your state". Try Dell next time (unless you live in TX).<<
I have bought Dell computers and have had them shipped to Ohio, Illinois, and Utah and have had tax collected in each case.
>>Technically, you're supposed to pay the 5% use tax on your state income tax form, but nobody does - it's definitely tax evasion, but it's almost impossible to stop. <<
Actually, you are correct it is TAX EVASION. But you are WRONG when you say it is impossible to stop.
What is going to happen in the next two or three years is that you are going to see state taxing authorities gather information from the large mail order and internet shopping sites and share the information with other states. Then, the states may decide to start sending out tax bills. Technology makes this easy. And large state deficits will make it necessary.
Nope not a gateway. Not a Dell either, but if you buy one of those you pay MA tax as well. Dell is covering it's backside and probably just pays the money to the state of TX - let them sort it out.
For kicks and giggles I pulled out my 2002 MA State Return. It specifically says "Use Tax Due on Out of State Purchases". Further I found this at www.state.ma.us/bb/fy98h1/tax_expenditures/part4.htm which clearly identifies it as a sales and use tax:
"A purchaser is also responsible for paying use tax directly to the Commonwealth on the sales price of taxable property or services purchased out-of-state and stored, used, or otherwise consumed in the Commonwealth, provided that a sales and use tax of 5% or more has not been paid separately to another state."
and
"Interstate and International Aspects: Massachusetts applies the destination principle to international and interstate sales. Accordingly, exports are exempt and imports are taxable under either the sales or the use tax."
But on the good side, I'm not paying a 7% tax on a newspaper I buy in Orlando or 6% on clothes in Maine.
Robr2: You should try Hawaii! Although the sales tax is only 4% IT APPLIES TO VIRTUALLY EVERYTHING. Rent, food, books, clothes, dental, medical--you name it. Yet Hawaii has some of the lowest real estate taxes around--talk about regressive taxes! BTW: I refused to buy a Gateway because they wanted to charge me for both shipping and taxes while Dell charged me neither. I guess it's changed at Dell.
JLaw: Figures I got it backwards! However, it only makes my argument stronger. According to the link you posted, the court held that: "The State's enforcement of the use tax against Quill places an unconstitutional burden on interstate commerce." My point exactly. I think that's why states call them "use taxes" so that they can avoid similar litigation.
ANY QUESTIONS FOR A CAR DEALER. You should all wright your congressmen if you have this much of a problem with taxes. You do realize you often pay more tax on a car than you do prifit to the dealer!!
Were we at arms length across a table, I'd be willing to make a "committed" offer to -you- because your posts indicate that you're a straight shooter. I think I would probably get a committed "yes" or a committed "no" that I could rely on.
FWIW, of my last three car transactions over a period of 7 years, I have had my "committed-yes-I will-buy-today" offer accepted by the salesperson, presumably after it was sent "upstairs." In two of those instances, the deal had been changed by the time the paperwork appeared because "we just can't do it at that price."
Even if the sales staff are a bunch of sleazeballs like the ones we dealt with 5 years ago, it is fine to make a committed offer. Be sure to catch them when they try to cheat you just before you write the check.
As long as you get the car you want for the price you want, you can be happy. In addition, you have the pleasure of giving them a terrible CSI rating.
Of course, it is better to deal with honest guys like Isell or the people we dealt with two weeks ago, but there is no need to be afraid of the sleazeballs. Actually, it is kind of fun watching them in action.
>>Try to change numbers on me or pull something sleazy and I'm gone.
I won't reward a dishonest business with a sale.<<
I am on a 401(k) investment committee that has a couple of funds with a certain mutual fund company that is currently under investigation. The home office says, "that's OK, our funds are not affected."
My response, "How do you know?" What is the old saying, "Look Moor, if thou hast eyes to see, she hath deceiver her father, and may thee."
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The term for Alaskans that have been here forever (or many, many years) is sourdoughs.
Living in Alaska isn't always easy, but it does have its good sides. Although last week we finally got some snow (about 3 inches) and now its 40 and melting, raining in Fairbanks, roads are horrible. Looks to be a repeat of last year, sure glad I invested in good snow/ice tires.
Jack
Please correct me if I'm wrong, but I think your example only holds true in states that collect taxes on private sales--many states do not. In those states, the total sales tax collected is $1920 either way you do it. As long as fair market values are paid on both transactions, it doesn't matter.
Terry repeated what I had manrioned in my post - the fact that the dealer would not have time to re-title the car, and more importantly, the selling price would match the trade price. Even in a fast turnover, the dealer is going to make SOMETHING on the used car. On an I&O, there's no dealer markup on the used car, and that will stand out to any auditor.
6096-
The whole point of an I&O is to reduce the amount of taxes paid. If there's no sales tax on a private party sale, there's no reason to do an I&O, because the dealer would have to charge the aecond party the appropriate tax on the used car. The second party wouldn't go for the I&O if they have to pay tax when they don't have to if they buy direct from the original owner.
The whole situation only applies where a state collects sales tax on all vehicle purchases and allows a tax credit on a vehicle-to-vehicle trade. If the state where you reside doesn't do both, than an I&O is irrelevant, and likely would never occur.
kcram
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I would tend to agree. Just because there is a loophole, it is not illegal to exploit it. The huge SUV depreciation tax savings was enacted by congress for farm equipment, not luxury SUV's and it cetrtainly wasn't intended for doctors and lawyers, yet it is being used to write off depreciation on these vehicles.
kcram--"She and the other agents in her office are pros at this (my sister has 15+ years of collection experience, both bank credit and tax), and they have yet to be fooled by anyone." How do they know that for sure? The ones that have gotten away with it have not been caught, so how would they know if they caught them all? Simple logic.
I also found your comment "The illegality is the intent, not the actual transaction." interesting. As I alluded to above, trying to avoid taxes is not illegal. If I buy a home and claim a tax deduction on the interest, is it illegal of me to buy the home only to lower my income taxes? Same holds true for the in and out. If it is not illegal for me to trade a car in ( and get a tax savings) and it is not illegal for the dealer to sell that trade in at whatever price they want to, I see nothing illegal about combining the two. It is not the govt's business where the buyer of the trade comes from, a walk on to the dealers lot or the new car buyer brings them with them. Is it illegal for me to buy merchandise in one county over another because they have a lower sales tax?
Your example was very good, but that type of transaction takes place everyday. People trade in cars and get a tax savings. The state losses that tax revenue. Why do you think the laws are written that way? Is it to punish the private seller?
royce--you gave a good example too, but I had a question. Could the in and out be structured so that the dealer gets possesion of the trade in title and then the used car buyer buys it from the dealer? That way all of the paperwork would be in order. The used car buyer would buy the car from the dealer but may have to wait a week or so for the title to clear, etc. Would that allow for the paperwork to be processed the same as if it was not an in and out?
And it's this abuse or unintended benefit that usually gets such loopholes closed.
kcram--"She and the other agents in her office are pros at this (my sister has 15+ years of collection experience, both bank credit and tax), and they have yet to be fooled by anyone." How do they know that for sure? The ones that have gotten away with it have not been caught, so how would they know if they caught them all? Simple logic.
I never said they catch you immediately
Is it illegal for me to buy merchandise in one county over another because they have a lower sales tax?
no, but that's not what is occurring with an I&O. With an in and out, you're using a third party (the dealer) to reduce the tax hit on a transaction that the business is doing as a favor to a customer. As Terry and I both mentioned, there are procedures that have to be followed when a dealer takes a car in trade, and the dealer is also on the hook for any warrantable responsibilty. And again, the red flag would be the used car would "coincidentally" be sold for the same price as the trade value. No reputable dealer will sell a used car that they have to stand behind by law without any profit. If the car isn't worth it, they auction it. If it's a wanted vehicle, they'll sell it for as much as they can, not what they paid.
The customers involved with an I&O are not the ones the state would go after. The dealership is the one who will be questioned, because the dealership is a licensed tax agent for the state (as is any other retailer who collects tax on what they sell). In my chiropractor/insurance example I mentioned, the doctor would be the one charged initially as they were the ones collecting the unearned payments. It would then be up to the doctor to name the patient as conspirator.
Mass, your poiints are well-taken, but you're looking at it from the consumer's point of view. You just see it as saving money. The business person can't look at it that way - they have more to lose.
kcram
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You are right. That is the only view I have since I do not own a car dealership. I agree with you that the liability would be the deal breaker for me, if I were the dealer.
Would it make a difference to the dealer if the new car buyer were buying a hot seller that they are going to make thousnads on? I know you guys will say it does not make a difference if your view point is illegal, but would the dealer be more willing to at least look at the in and out with a lot of profit on the line?
Again, can't the deal be structured over a longer time period for title concerns, or is the price being the same the kicker?
That's a land mine waiting to stepped on .. once the title is in the dealers name, then sold ~ it better be supported by a *viable* tax ID# and a dealer license# number for re-sale if no taxes have been paid .... if the dealer does it with a regular retail customer, then the customer will have to pay taxes on it again, it just doesn't work out.
Once in awhile I will get someone that owns a large business, big builders, huge food franchises, the big hardware store down the street, whatever, and they will ask me - "Hey, I have a tax exempt number for my business, I will use that and you won't have to charge me the taxes, right .?" ~ Wrong.!
I just had a guy that owns 10 Wendys, and we wanted this 02 S430 Benz I had and that was his story "Hey the guy down the street will do it" .. Okay then, go down the street and buy a vehicle from him, cuz' I don't need to risk my business and be on the Radar screen for the next 5 or so years, all he wanted, was to save the $4,200 in taxes, he bought it and Paid the sales tax, that's cuz' there is no "guy" down the street that is stupid enough to do it ... see in a business, it IS the Govt's business and it's simple ~ don't &*#$ with their money and they wont have a "need" to &*#$ with your money ..l.o.l...
Terry.
The states that allow you to subtract the trade in value are merely accomodating the idea of "not double taxing" the same person on the same value (take it up with your state reps).
Dealers are right not to participate in the "sham transactions". They have too much to lose (and they will). To those of you protest that the dealers should do it, do you volunteer to do their jail sentence or cough up the penalties assessed by the taxing authorities (this is a state tax issue, not an IRS issue)? You are probably the same ones who doctor up their 1040's when April 15th rolls around (or do you not do it for fear of getting caught)? Laws are laws. Whether you like them or not is one thing. To break them, you risk punishment. You speed (who doesn't), you get ticket if you get caught. You evade taxes (some do, more want to)you can go to jail, and in dealers' case maybe lose their business. In any case there are choices. Most dealers fortunately prefer to stay out of jail.
The horse is taxed, dead, and buried. Let's move on.
metmdx
Let me tell you how this generally worked, for this big company...
We had a state Tax auditor, from one of the large states, that was assigned for years to the company, in ONLY ONE AREA OF TAXES! She actually bought a house in town, that was how long she was assigned there!
She would take random samples of taxable transactions (that's where I came into the work). She would then investigate these samples for 'errors'.
When the 'errors' were found, she would then extend this 'error rate and amount of tax due' aganist the entire tax load for the company for this state for a year. This is the number the state then assessed to collect. Plus interest and penalities (since this was historical data, there was always interest and penalities).
So, extending this approach to a large auto dealership --- the auditor might only look at 100 car sales with trade-in. And decide that some amount of them looked like 'in-and-outs', with a loss of $$$ to the state. This error rate would be extended to all sales with trades for the year, and calculate the tax, interest, and penalities.
And auditors usually are covering more than one year. So, it's extended across the other years that are 'open to audit', with, of course, more interest because that is further back in time.
If the company doesn't come to an agreement about this, the audit can easily be extended back for additional years (unless these years have been previously audited and 'closed').
And, the company could expect to see the state auditor again next year, you bet!!!
Obviously, this is labor intensive. So the auditors only pick on the 'big boys', where the additional taxes assessed would 'pay' for the auditors claims. Smaller dealers probably would have less chance of seeing the auditor. But...., if they did come in, and found 'errors', this means they could be extended back a lot of years. It varies by state, but I would bet most states can easily go back for 10 years. And this is without saying any fraud was intended....
Intent forms the basis for attempted murder, but is clearly insufficient for murder.
You can't pick up a paper today without SUV being in the headlines, eg. "Motorcyclist killed in encounter with an SUV". Congress knew that SUVs were included and could have stopped this if they wanted. A couple of points:
1. This law tries to benefit the auto industry by getting business to replace vehicles more frequently. It has clearly worked. The auto inductry has suffered less in the last 3 years than some businesses, and Section 179 has played a role in this.Using the old method of depreciation, most businesses could deduct less depreciation than had actually occured in the real world. This put a "damper" on business spending.
2. Total tax deductions for SUVs are the same for Section 179 vs. non Section 179. The difference is that the deduction can come sooner. If you keep an SUV used in a Section 179 deduction for its useful life, the total depreciation will be the same. Eg., Section 179, deduct purchase price of, say, $20k the first year, $0 for years 2 - 5. Non Section 179 purchase, take $4k for each of 5 years.
Just ask any of the sales pros here that sell Navigators, X5s, Tahoes, Suburbans, etc. if they mind Section 179.
BTW, most small businessses have tax reduction and tax compliance on their minds all the time. You can debate if Congress should pass laws that influence behavior. But that's what Congress has done, is doing, and probably will continue to do.
Acutally in MA, it is. The sales tax rate in MA is 5% no matter which county - counties mean nothing here. We have tax free NH right next door. MA has always had a law that if you buy something out of state and bring it back to MA, you must pay the 5% tax if you didn't pay that amount in another state. Of course, it wasn't enforced. MA added to the 2002 income tax forms a line asking to you list out of state purchases you owe the tax on. Put a big zero there and sign the form when you did buy something in NH, it's tax evasion!!
What you say is true except that you forgot another possible incentive besides tax savings: a dealer's warranty. In most states, private party sellers may only be held liable for repairs to a vehicle they have sold if they KNOWINGLY misrepresented the condition of the vehicle, while dealers are usually responsible for repairing most problems that occur within some specified period of time or mileage. A minor point perhaps...
Sounds to me like MA might have some problems prosecuting those tax evasion cases because states are not allowed to interfere with interstate commerce. Taxing out-of-state purchases amounts to interference--that's why congress hasn't authorized states to tax internet sales yet (unless either the seller or buyer resides in, or has a substantial presence in, that particular state). However, I could see that MA could legally refuse to register a vehicle purchased out of state if taxes aren't paid. Another way around it is to call it a "Use tax" whereby one would be paying for the privilege of using the vehicle in MA.
As for interfering with interstate commerce - I'm not an expert but I believe that interstate commerce laws generally concern themselves with wholesale not retail. Further you can't forget about state's rights. Lastly, IMHO I think Congress hasn't gotten involved because they don't want to put the onus on the seller (ie Mom and Pop shops) and they have not figured out to get a cut of it!!
MA General Laws deem that the state can collect sales tax on the retail sale as long as an agent of the retailer delivers the product in MA. Can UPS, FedEx, or USPS be considered an agent? Also, don't forget about state's rights.
The main issue here is people travelling to NH to major retailers that are also in MA in order to avoid the tax or if the product is delivered in MA if the retailer has no MA presence. 5% on a $3K TV is worth the ride to many people.
I did a few web searches and found that belts were required in cars since 1968 and light trucks/vans since 1971.
The guy called his son who remember correctly that it wasn't seat belts, it was air bags that it didn't have.
Strange that anyone could think that a 1995 SUV would be sold without any seat belts!
"MA General Laws deem that the state can collect sales tax on the retail sale as long as an agent of the retailer delivers the product in MA. Can UPS, FedEx, or USPS be considered an agent? Also, don't forget about state's rights."
Using this logic, all one would have to do to avoid sales tax is have the car delivered by a car transporter service--unless you would consider Joe's Flatbed Service an agent (as you described).
"As for interfering with interstate commerce - I'm not an expert but I believe that interstate commerce laws generally concern themselves with wholesale not retail"
Wholesale, retail, doesn't matter. As an experiment, call Tire Rack and order some tires. I promise you that they won't charge you sales tax (provided you're not in the same state).
"I think Congress hasn't gotten involved because they don't want to put the onus on the seller"
Don't they almost always put the onus to collect taxes on the seller?
"don't forget about state's rights"
I haven't forgotten about states' rights. My question is whether or not they have any right to interfere with interstate commerce. As an example, consider what the State of Alabama has to say on the subject:
"Sales are considered to be made outside Alabama and cannot be taxed by the Alabama Sales Tax Law where:
(a) The seller is required by the sales agreement to deliver the goods outside the state in the seller's equipment, or
(b) The seller delivers the goods to a common carrier or to the United States Postal Service for transportation outside the state regardless of any F.O.B. point, or
(c) The seller is required by the sales agreement to deliver the goods outside the state by the use of an independent trucker hired by the seller."
In essence, if you take delivery outside the state, you don't owe sales tax...
Sorry for the long post!
Car_man
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Not to beat the in and out horse to death, but I am confused by some previous posts. Everyone keeps talking about the dealer's liability of selling the used car to the private buyer. It was my understanding, in my state at least, that once a used vehicle was over the curb, you owned it, no recourse. Am I missing something here?
I have and they have not charged me tax. But that doesn't mean I'm not required to pay it to the state myself. I have also ordered computers and was charged the tax - even without an in state prescence.
Since we have had 2/3 different discussions on 2/3 different topics here, I can see how you would get confused .. your a GA boy, right.?
Unless the -dealer- has a warranty on it, the vehicle get's the "balance" of the factory warranty, if any.
But as a rule, it's "As Is, where is" unless something is specified in the contract and/or the used sticker on the window which you get a copy of ... there's no 3 days, no come back in 6 months, this is also true for new, everything from there is based on the manufacturers warranty ...
But on rare occasions and good policy, I have taken a buyer out of one vehicle and put him in another, maybe the dog died, maybe his wife hates green with purple interior, maybe his wife is 4'8 and can't get into a Navigator and he "forgot" to tell her, so I put them into an Escape that she likes, but we are talking in hrs, not weeks ....
Terry ;-)
Bingo ...!!
Title, Registration and tags .. and it's checked on every quarter ...
Terry.
Every state differs on how they deal with out of state purchases. You really need to do the research on whether or not your state requires you to pay it. As far as your computer, I'm betting you bought a Gateway or from a company that has "a substantial presence in your state". Try Dell next time (unless you live in TX).
PRODIGALSON: If you refer to my earlier post (#6109), I recognize the fact that you must pay sales tax if you register the vehicle in state. However, to use your example, lots of people buy and register vehicles in Oregon and later register them in Washington wihtout paying any sales tax. The trick is that you must have an Oregon address to do so (just one of the many reasons to buy a place on the Oregon coast!). By the way, states usually circumvent the Quill decision by calling the tax you pay at registration time something other than a "sales tax". For example, Hawaii and some other states have implemented a "Use tax". We all still call it sales tax...
CAR MAN: just because a state collects sales tax doesn't make it legal. It might just mean that it hasn't been challenged in court yet. Some states have been hammered for collecting taxes on vehicles purchased in other states. For example, Florida got slammed for charging an "Impact fee" that essentially served as a sales tax on all the cars brought into the state by part-time residents. They were forced to pay back fees collected.
The bottom line is that there is soon to be a major battle over interstate sales taxes. Congress knows it's going to happen in the internet sales arena, but they keep deferring the battle by declaring "moratoriums." They will be eventually forced to deal with this issue and the effects of the outcome will trickle down to other areas (like car sales).
Again, sorry for my longwindedness (is that a real word?)
Remember, most States are "recriprocol" states .. if the guy is here in FL and the vehicle is going to be registered in NY/Oh/PA we pick up the difference ..
Terry.
Tax/audit/legal liability issues are obviously a different animal.
2020 Acura RDX tech SH-AWD, 2023 Maverick hybrid Lariat luxury package.
Ok, maybe I shouldn't be drinking Tequila at 7am ...
Nope you bought it, you own it.! Period.!
But ..! if the dealer has any brains, an IQ over 50 and want's to remain in business for more than 122 days, the he "should" get it towed in and have a Real Close look at it ... with that said, it depends on what's wrong with it, did the owner put 2,000 miles on it with oil light on ..? did they drive the vehicle in D2 for the last 455 miles through Oklahoma at 80mph .?
Me personally, I just get it handled unless there is something "hinky" about the customer .. but that's me.
Terry.
Once in awhile, we will sell a car to an Oregon resident. We require them to provide at least three solid documents proving they are OR residents. Driver's lic, utility bills, etc.
If, when we pull a credit report, they show ANY Washington residency, they pay the tax.
We do get audited and this is a sacred cow for the tax collectors.
A cabin on the Oregon Coast would be nice but it wouldn't save a person any taxes when buying a car.
Same thing here in FL ... "Hey, I will just use my sisters address here in Florida, right.?" .. Wrong .l.o.l.. your current vehicle is registered in NY, your DL is from NY, your last mortgage payment is from NY, you just financed your new vehicle from NY, You just voted in NY ... aaahh, get it ..?!
Besides, I met your sister and her face would stop a clock, so no help there ......
Terry
I'm no lawyer, but I must disagree with your assessment. First, Quill doesn't say that LL Bean doesn't have to collect the sales tax. It says that LL Bean MAY NOT collect the sales tax from North Dakota residents. The way I read it, the Court's purpose was to prevent states from shifting the tax burden to people outside their state. (It's always better to tax those who can't vote you out of office). The Court also sought to prevent states from interfering with interstate commerce by taxing interstate transactions. In short, Maine (ME) was prohibited from collecting sales tax from residents of North Dakota (and the rest of us for that matter).
As far as one's home state is concerned, I think Complete Auto Transit v Brady is one of the main decisions that apply. Your state can collect a sales tax at registration because the tax is "fairly related to services the state provides the taxpayer." However, some might argue that the tax violates another of the four prongs of CAT v Brady: "Does the tax discriminate against interstate commerce?" Maybe that's why many states play it off as a "use tax" rather than a sales tax...
Again, I'm no lawyer and I apologize for playing one here.
Complete Auto is relevant to whether the state can compel residents to pay the tax on out of state purchases: the state can, and does, where those purchases can be easily tracked (such as cars).
I have bought Dell computers and have had them shipped to Ohio, Illinois, and Utah and have had tax collected in each case.
Actually, you are correct it is TAX EVASION. But you are WRONG when you say it is impossible to stop.
What is going to happen in the next two or three years is that you are going to see state taxing authorities gather information from the large mail order and internet shopping sites and share the information with other states. Then, the states may decide to start sending out tax bills. Technology makes this easy. And large state deficits will make it necessary.
For kicks and giggles I pulled out my 2002 MA State Return. It specifically says "Use Tax Due on Out of State Purchases". Further I found this at www.state.ma.us/bb/fy98h1/tax_expenditures/part4.htm which clearly identifies it as a sales and use tax:
"A purchaser is also responsible for paying use tax directly to the Commonwealth on the sales price of taxable property or services purchased out-of-state and stored, used, or otherwise consumed in the Commonwealth, provided that a sales and use tax of 5% or more has not been paid separately to another state."
and
"Interstate and International Aspects: Massachusetts applies the destination principle to international and interstate sales. Accordingly, exports are exempt and imports are taxable under either the sales or the use tax."
But on the good side, I'm not paying a 7% tax on a newspaper I buy in Orlando or 6% on clothes in Maine.
JLaw: Figures I got it backwards! However, it only makes my argument stronger. According to the link you posted, the court held that: "The State's enforcement of the use tax against Quill places an unconstitutional burden on interstate commerce." My point exactly. I think that's why states call them "use taxes" so that they can avoid similar litigation.
Lets get back to somthing more interesting
FWIW, of my last three car transactions over a period of 7 years, I have had my "committed-yes-I will-buy-today" offer accepted by the salesperson, presumably after it was sent "upstairs." In two of those instances, the deal had been changed by the time the paperwork appeared because "we just can't do it at that price."
Buyers have war stories too.
As long as you get the car you want for the price you want, you can be happy. In addition, you have the pleasure of giving them a terrible CSI rating.
Of course, it is better to deal with honest guys like Isell or the people we dealt with two weeks ago, but there is no need to be afraid of the sleazeballs. Actually, it is kind of fun watching them in action.
I will not. Try to change numbers on me or pull something sleazy and I'm gone.
I won't reward a dishonest business with a sale.
When we go ahead and buy from a place like that they will continue their practices.
I won't reward a dishonest business with a sale.<<
I am on a 401(k) investment committee that has a couple of funds with a certain mutual fund company that is currently under investigation. The home office says, "that's OK, our funds are not affected."
My response, "How do you know?" What is the old saying, "Look Moor, if thou hast eyes to see, she hath deceiver her father, and may thee."