Sales tax "trick" while buying a used car; i.e. declaring sale at lower than actual transaction value?
I am selling my car and have found a potential buyer. After I transfer the vehicle ownership, the buyer will have to transfer the vehicle title to himself, and will also need to pay sales tax on the sale price.
As the buyer is paying me in cash, he asked me to write down a really low amount as sale price, so that he will save a considerable amount of the sales tax.
So, I would get my asking price, but it won't look like that on the paperwork.
Can declaring a lower amount for the sale price get me in trouble later? Or will it be just the buyer at risk because it was the buyer's decision or idea?
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As others have mentioned, you potentially could get in trouble since it is ultimately a form of tax fraud. If offered while making such an offer, I would also be somewhat wary of a potential sting operation given that I suspect that a number of private sales do in fact take place at a lower than actual transaction value.
On the other hand, depending on the state where you are making the transaction, by declaring a lower transaction value, the buyer is potentially exposing himself to lower-protection from the used car lemon law. Certain states (MA for instance) require the transaction to be reversed if the car turns out to be a lemon and the buyer would have difficulty proving the correct transaction value in court.
Finally, assuming you choose to continue your cash transaction (regardless of stated value) with the implied low morality buyer, I would recommend buying a counterfeit-bill detector pen to bring with you to the sale.
-Frequent private sales individual
This topic has been covered well but another consideration that hasn't been mentioned is your liability for capital gains tax in the US. Typically, used cars sell for less than they were purchased, so capital gains doesn't apply to the proceeds.
If you were to purchase for ,000 but sell for ,000, you would need to consider the ,000 subject to capital gains taxes.
Another scenario would be if you buy a car for ,000 but actually pay ,000. Later, if you sold, for ,000 you would be responsible for paying capital gains taxes on the ,000 appreciation. At least, according to the paper trail. Capital gains is typically going to be much higher than sales tax.
Ultimately, consider your paper trail and the future scenarios. It's generally best to be above board and follow the law with things like this.
Yes you can get in trouble. Here is the quote from the Bill of Sale form from California:
This line is right above where you sign.
I certify (or declare) under penalty of perjury under the laws of the
State of California that the foregoing is true and correct.
Other states are similar. Virginia uses more words:
In accordance with all applicable statutes, administrative rules and
regulations, I certify that the selling price of the above-described
motor vehicle was $ ______________, which included all accessories
and/or attachments with no trade-in allowance or any other
transaction. I further certify and affirm that all information
presented in this form is true and correct, that any documents I have
presented to DMV are genuine, and that the information included in all
supporting documentation is true and accurate. I make this
certification and affirmation under penalty of perjury and I
understand that knowingly making a false statement or representation
on this form is a criminal violation.
Can doing this get me in trouble later ? Or will it be just the buyer
because its the buyers decision or idea ?
Definitely can, and not just the buyer since you're signing this thing as well. This is what is called "tax fraud".
When I lived in Ohio, when you went to register a car that you'd bought private sale, they looked up the book value, and if you were some percentage below that, you had a choice of paying tax on the book value, or getting sworn notarized forms that this was the price you really paid, and if you were caught lying, you could go to jail.
The one exception was that if you bought a car from a relative, they accepted that you might really have paid a below-market price.
I don't know how vigorously they investigated, maybe it's an easy crime to get away with. If they really cared, then if you paid with a check they could surely easily subpoena records from the bank to get the amount of the check. Even if you paid with cash, if they see that the buyer withdrew $X from the bank the day before the sale and the seller deposited $X the day after the sale, that would be strong evidence that that was the sale price. All things considered, I've never thought that saving a hundred bucks or whatever on the sales tax was worth risking going to jail.
And as to "will I get in trouble as it was the buyer's idea?" ... think about that for a few minutes. "My buddy Frank suggested that he and I rob a bank, so I went along, I shot the guard and drove the getaway car while Frank was the one who grabbed the money. If we get caught, will I get in trouble given that it was all Frank's idea?" Yes, you will.
You can point out the following to the buyer when talking him out of trying to cheat on his taxes:
As the buyer, the reward from the crime is so small and the penalties so high, it's simply not worth it. If you buy a ,000 car for 00, the DMV is going to immediately notice that fair market value wasn't paid and you'll get caught. If you try to wiggle within the FMV numbers and and buy a ,000 car for 00 with k under the table, great, you've saved -80 in sales tax and risk getting caught with far greater penalties over an insignificant amount of money.
Your buyer shouldn't be bothered to even consider such a scam.
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