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Taxes in a Private vs. Dealer Sale??

Discussion in 'New York Tri-State' started by ghost, Feb 6, 2004.

  1. ghost

    ghost F1 Veteran
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    Dec 10, 2003
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    I always get confused about taxes to be paid in a dealer-purchase versus a private-party purchase. As I understand it, if you buy from a dealer, you have to pay full taxes (which is the 8.625% NY state tax, I assume?). However, I understand that if you buy from an individual, you don't have to pay these taxes since this is "private party." Is this correct?

    Obviously, if this is case, then there is a "hidden" cost to purchasing from a dealer (in addition to the above-market price they are already gorging you with), and it needs to be factored in.

    One last twist: assuming you pay taxes in a dealer purchase, which state's tax rate do you pay if you are in NY, but the dealer is in another state -- I assume the NY state.

    Thanks.
     
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  3. noahlh

    noahlh Formula 3

    Aug 28, 2003
    2,225
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    Noah
    Nope -- you have to pay sales tax no matter where you buy the car from. And you don't pay to the person (or dealer) from whom you buy -- you pay directly to the DMV when you register the car (that's how they make sure to getcha when you buy private-party).

    I think that's how it works in almost every state...
     
  4. ghost

    ghost F1 Veteran
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    Bummer!
     
  5. Ashman

    Ashman Two Time F1 World Champ
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    Sep 5, 2002
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    The one sales tax advantage with a dealer is on a trade in. I believe that you pay sales tax only on the difference between the trade-in value and the purchase price of the new car. This can partially offset the hit you take by trading in at wholesale instead of trying to sell the car on your own, hopefully at retail.

    Also, you avoid paying the whole sales tax upfront if you lease the car. You still pay a sales tax, but on the monthly payment amount. Even though you are paying the sales tax on the payment (which is made up of depreciation plus interest costs), you can multiply the monthly sales tax amount by the number of payments to see how much you will pay in total.

    John Ashburne
     
  6. dm_n_stuff

    dm_n_stuff Global Moderator
    Global Moderator Lifetime Rossa Owner

    Dec 10, 2003
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    Dave
    'course, down here in PA, they add an additional 3% tax to the lease. Their argument is they don't get full sales tax up front, so they collect a higher "lease tax" to make up the reveune shortfall.

    Oh, and if you want to try and get the seller to lie about the price of the car, do it at your own risk. The state regularly audits these transactions, and will send you a bill if they think the sale price was too low. Actually, they make you produce a bill of sale for the claimed price, and sign an affidavit along with seller as to actual price.
     
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  8. ghost

    ghost F1 Veteran
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    Dec 10, 2003
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    Keep in mind that the tax savings that you get with a dealer by paying taxes only on the differential between the dealer price and your trade-in value, in most cases DOESN’T make up for the extra $’s that you get by buying from a private party at a lower price. In addition, you will be able to sell your existing car to a private party for a higher price than you will to a dealer, and so you make out ahead here as well.

    To substantiate this numerically, I put forth a simple example with the following fact pattern:

    1. Assume you are buying a ’95 355B.
    2. Assume that a dealer offers to sell it to you for $78K, but that you find an equivalently conditioned car being sold by a private seller for $70K, which in my mind represents a fair differential between a dealer and private party price.
    3. With the dealer, assume you can trade in your car (call it an old NSX) for $40K, whereas with a private party, you can sell it for $42K.
    4. Assume an NYC tax rate of 8.625%.

    Here’s the math to you, based on who you transact with:

    Dealer:

    Car price: $78,000
    Plus: $3,278 (incremental taxes based on trade in differential)
    Less: $40,000 (trade-in value)
    Net cost: $41,278

    Private Party:

    Car price: $70,000
    Plus: $6,038 (taxes on full purchase price)
    Less: $42,000 (private party sale value of your car)
    Net cost: $34,038

    As you can see from the example, you come out a full $7,240 ahead if you go the private party route. You’d have to move these numbers quite a bit, to them close to each other.

    The one benefit that a trade-in does allow for is convenience, in that you don’t have to go through two sets of negotiations, extra time, potential for a seller to back-out, etc.

    Choose your poison – but know what you are getting in to.

    Regards.
     
  9. thecarreaper

    thecarreaper F1 World Champ
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    wow , great thread! a question;
    since the state gets the apllicable taxes, and there is now a record of this transaction taking place, how is the income tax liability figured on the car you sold?
    do you only have to pay federal taxes if you made a ton of money on the car? it seems a deposit in the 40k range would raise a few eyebrows. sorry for the hijack , but the questions seemed germain to the topic! thanks, michael
     
  10. miked

    miked Formula Junior

    Feb 7, 2001
    641
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    Mike Dawson
    Many years ago my boss at the time got in tax trouble after selling two cars at a profit. He bought 3 run down Lotus Europas as a package deal, fixed them up and then sold 2 of them. He got hit for tax on the money he received above HIS purchase price (per car, as declared when he bought the cars). He had all the receipts for what he put into the car(s) and argued that the tax should only be on profit above his "investment". WRONG, without a business license it's considered a "hobby" and any money above HIS original buying price was considered taxable income. To top it off, the tax investigation reveiled that the remaining car, the one he kept, had been stolen about 15 years before and it was confiscated by the police.

    As a friend who is a city manager once told me, "the three most important things in government are revenue, revenue and revenue". Without it there are no "public service" careers.
     
  11. thecarreaper

    thecarreaper F1 World Champ
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    wow! it seems the statue of limitations would have been up on the stolen car by then and he would have legal claim.... geeze. thanks for the answer!
     
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  13. norm

    norm Karting

    May 30, 2003
    204
    Rochester, NY
    In NYS, on dealer transactions, you pay sales tax on the sale price of the vehicle. However, if a trade is involved, you only pay sales tax on the difference amount.
    With a private party transaction, you need motor vehicle forms( I think ST-170-?)signed by the seller regarding the sale price of the transaction. This is in addition to title, and standard bill of sale. At the time you register, an apply for the new title(if '72 or newer), the state will collect the sales tax. You will pay sales tax on the full purchase price.
    Out of state purchases from a private party are handled similar to in state from private party.

    The only sticky situation would be if you purchased a vehicle out of state, and paid an out of state sales tax. You will still pay NYS tax on full amount! You would have to screw around and try to get a refund from the tax department of state in which it was purchased. Very important on interstate transactions with dealers to have this straight,ie: delivery to out of state, etc.

    As far as saving tax on dealer transaction vs a retail sale, it all depends on the numbers.
     
  14. ghost

    ghost F1 Veteran
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    Dec 10, 2003
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    I don't think this is entirely true. NYS has an agreement with the majority of states so that an individual can claim credit from NYS in the event they paid local state taxes at the time of purchase, if the car was purchased in a separate state. You would just need to fill out form DTF-804 (don't ask me the significance of the name) to gain credit. This is referenced on the DMV website here (last bullet point).

    Regards.
     
  15. KevinW

    KevinW Karting

    Nov 4, 2003
    106
    Phoenix, AZ
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    Kevin
    Wow, that's kind of scary. I've sold a few cars in the past where I've saved the buyer some sales tax. I'll be sure to be more cautious in the future.
     

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