Do used car sellers avoid taxes?

[ThosL]

This is pretty easy to do with many cash sales and it begs the question whether people flipping vehicles, buying at auction and in private sales and selling them for cash are reporting their profits as income?  Do the states do due diligence?

 

Edited September 20, 2015 by ThosL

[robm]

There are also sales taxes.  Here in BC, the seller doesn't necessarily fill in the cost fo the vehicle on the transfer form, the buyer does.  Whether that number is filled in correctly or not depends on the honesty of the buyer, and how much he feels like paying 12% sales tax on a used car.

[ThosL]

So often they get taxed based on Kelly Bluebook, etc., which is often way off of real value.

Edited September 17, 2015 by ThosL

[idosubaru]

they sometimes require a notary and business license for any vehicle sold for profit.

I have given a few cars away to friends - zero cost.  Taxes still have to be paid on it even though it was legit zero dollars, but some states don't allow gifting or only to family.  They end up costing me gas, new timing belt, brakes, pass inspection, all for free - and tax still has to be paid on it?   Come on gubmint, I can't even help someone without getting hosed!??!?

 

I could get bent, complain about it, call it stupid, get it arbitrated...but it's not worth the time, it is what it is.  Systems are never efficient, that's a reality of social systems and any one-size-fits all approach.  It'll never be perfect.

[ccrinc]

Most states have an arbitrary limit as to how many vehicles someone can sell in a year without having a dealer's license.  (For Colorado, it's 6.)  Only dealers have to report sales taxes: private sales taxes are paid directly to the state when the car is licensed by the new owner, but the state takes the amount from either a bill of sale or reported amount on the title itself.

 

As to income, the states don't really care about that.  The IRS says they care, but unless someone is particularly egregious about it, and it goes unreported, nothing happens.

[ThosL]

One way around this is someone gets a vehicle with a title or registration filled out and made out to blank; then the "buyer" flips it and the real buyer fills out the information, like the guys from Bridgeport who flipped the Subaru to me paying $1200 and selling it for $3000.  No paper trail, just cash.

Edited September 20, 2015 by ThosL

[idosubaru]

Most states have an arbitrary limit as to how many vehicles someone can sell in a year without having a dealer's license.  (For Colorado, it's 6.)  .

 

Actually I don't think that's how the law is written - i say this for clarity, not that any one here cares !!!! LOL. 

 

States set a limit on how many cars you can sell in a year (though I don't know that they actually ever monitor it).

But - they don't ever qualify it like that - "without having a dealer's license".

 

Because States also have laws indicating that any vehicles sold for profit require an auto dealers license. So yes, you can sell cars each year.  But if you're doing so for profit - you need an auto dealers license.

 

The law permitting the sale of so many cars per year just means if you need to get rid of 6 cars because you're moving or something - you can legally do so.

 

This is for the few states that I know, I don't know Colorado law but I would guess it's similar - there's big money in the biz and big dealers do not want anyone legally able to sell cars without a license - it would be bad for competition since they have massive overheard for property, staff, workers comp, insurance, etc.

Edited September 18, 2015 by grossgary

[idosubaru]

One way around this is someone gets a vehicle with a title or registration filled out and made out to blank; then the "buyer" flips it and the real buyer fills out the information, like the Puerto Ricans from Bridgeport who flipped the Subaru to me paying $1200 and selling it for $3000.  No paper trail, just cash.

 

Yes, that's done all the time.

[ThosL]

Plus flippers can get around the limits by having buddies doing it in their names.

[lstevens76]

Okay, Idaho law actually says "without a dealer's license" and you are allowed to sell 5 cars per year for profit or otherwise.

 

I don't know of a state that doesn't allow a person to sell a car for profit or limit that in anyway.  Doing so would be fundamentally wrong in the US IMO.  

 

 

As for taxes many people will lower the amount they actually sold the car for when filling out the bill of sale and/or title.  This effectively lowers the amount of taxes the buyer needs to pay and tends to make some people willing to pay a higher price since they won't pay as much in taxes.

 

This can be a double edged sword though.  If insurance reviews purchase price on an accident it can create problems, etc....  I've heard things like "Well if you found this car for that price, you can find another one", etc...  

 

It's all in a personal preference and how honest you want to be with the government.

[ThosL]

As with the guys who sold me the Outback flipping it from $1200 paid to $3000 sold for with hard to find problems until later, they should pay the full taxes due and buyers could forward additional paperwork to the state, if they are taking essentially a blank check from another seller and selling it to someone else without their names being on the transaction.  Taxes on buying and selling are not that great for most people if they work in all their deductions.  And the argument that it is the USA and people can play by whatever rules and not file taxes honestly wears pretty thin with those who have looked into the implications.  And putting a lower number on the bill of sale than actual is bad all around and in most cases really doesn't amount to big money.  That's why a lot of states have gone to other basis for tax values than what the buyer states.  And the state has a right to do random inquiries on transactions as they should be doing.

[lstevens76]

I'll give a great example here so you can understand some of it.

 

I have a business (not specific selling cars) and I have a tax ID number.

 

I could purchase a car, within the 5 limit, and not pay any taxes on it.  Do whatever I want to it in order to resell it for more than what I paid then resell it and there will only be one tax paid on that car, buy the end buyer.

 

When buying something for resale the "middle man" per say doesn't pay tax on the purchase, only the end buyer pays taxes on the purchase.

 

If I want to sell my 5 cars a year as "flippers" I can do so without paying taxes on any of it, as the parts would be tax free as well and applied to the end "product" and shown as such on taxes.

 

Basically until the product reaches the "consumer" and is not in the hands of some sort of business sales tax at least isn't supposed to be charged.

 

And actually I already did that once this year unintentionally.  I bought my first Subaru from my Uncle and never transferred the title.    After fixing it and driving it I realized a standard as a daily driver in stop and go traffic wasn't going to work.  I found an auto and sold that one after it getting a new timing belt kit w/ pulleys, etc..., water pump, and some other stuff.

Edited September 19, 2015 by lstevens76

[mikaleda]

Ya, Idaho is pretty leiniant on there tax code for flipping vehicals. There is a sighn hanging in the DMV that's say you can sell up to 5 cars a year without a dealers license. Of course the buyer is supposed to pay %6 tax, but most people lie about the price they paid anyway.

[WoodsWagon]

One way around this is someone gets a vehicle with a title or registration filled out and made out to blank; then the "buyer" flips it and the real buyer fills out the information, like the Puerto Ricans from Bridgeport who flipped the Subaru to me paying $1200 and selling it for $3000.  No paper trail, just cash.

That's called a title skip, and the state actually doesn't like that. They want the car flipper to title the car in their name and pay the tax on it while they own it, then the customer to title it in their name and pay tax again.

 

You sound bitter about your car and are trying to blame it on the people you bought it from. In that context, referencing them as Puerto Ricans borders on racist. You own a car that's at least 16 years old, it's going to have failures, and you're going to be responsible to pay for repairs, that's the deal when you buy old cars out of warranty. Whining about it and trying to blame other people is immature. Trying to sic the tax man on the people you bought it from is a douche move.

[idosubaru]

Okay, Idaho law actually says "without a dealer's license" and you are allowed to sell 5 cars per year for profit or otherwise.

 

I don't know of a state that doesn't allow a person to sell a car for profit or limit that in anyway.  Doing so would be fundamentally wrong in the US IMO.  

.

 

I'm genuinely interested in this conversation - can I really sell 7 cars a year for profit without a license (assuming I pay taxes on the profit)?

 

Not sure it's ever enforced, but I'm not talking about the "legal minimum" that most states have.  I should have avoided the "without a license comment".

 

What I meant is there are other laws in place that could be used against typical "flipping".   Again - I don't know if they're ever used though, but they are sometimes in place.

 

Idaho statutes state that these activities require a dealer license: 

"Engaging in the business of selling, exchanging, or consigning vehicles/vessels"

https://itd.idaho.gov/dmv/vehicleservices/vs_dealr.htm

 

Probably never enforced, but seems to directly answer flipping vehicles for profit - that's presumably "in the business of" for those doing it frequently.

If i'm selling 5 vehicles a year for $2,000 more than I paid - it might look like I'm "engaging in the business of selling".

 

Oregon, keep in mind they have  the same 5 vehicle limit per year as well:

 

"Otherwise, unless exempted by law (ORS 822.015), a Dealer’s Certificate is required for any person or entity buying, selling, brokering, trading or exchanging vehicles; offering, displaying or advertising a vehicle for sale; or acting as any type of agent for the seller or buyer of a vehicle.

 

To dispel a myth, Oregon law does not allow persons to buy and sell five vehicles per year without a valid dealer’s certificate unless exempted by law. (ORS 822.005 and 822.015)."

 

" If I title the vehicle in my name can I then immediately resell it?

Titling a vehicle in your name to avoid dealer certification (licensing) requirements does not exempt you. You must be able to prove that you used the vehicle personally, for your household, family, or for your business to be exempt from dealer certification requirements."

 

So Oregon choose to use different terminology - must be used for person, household, family or business uses....then it can be sold.  It can't be bought and sold with the intent to make money.

 

Washington State department of licensing:

"  A curbstoner is a person who makes money from buying used vehicles and reselling them. They’re unlicensed dealers who don’t comply with state or federal laws. You have no legal protection when dealing with them."

 

Again - not saying it's ever enforced..but I'm curious.

[lstevens76]

Ok, here is how you get around all of that (other than the taxes).

 

Buy the vehicle.

 

Fix the vehicle.

 

Drive it while for sale (suddenly you are the titled owner and using it for personal use).

 

That just made any flip completely legal.  

 

This is the way most flippers in Idaho and other areas do it to my knowledge.  It doesn't state "how long" you have to use it for personal use, just that it needs to be used for personal use..................

 

Personally I seem to flip vehicles just to upgrade. lol  Like right now I'm considering sell my '00 OBS to get a '03 OBS w/ a rod knock to fix.  I might sell it to get a newer one w/ issues as well after I fix it. lol

[ThosL]

That's called a title skip, and the state actually doesn't like that. They want the car flipper to title the car in their name and pay the tax on it while they own it, then the customer to title it in their name and pay tax again.

 

You sound bitter about your car and are trying to blame it on the people you bought it from. In that context, referencing them as Puerto Ricans borders on racist. You own a car that's at least 16 years old, it's going to have failures, and you're going to be responsible to pay for repairs, that's the deal when you buy old cars out of warranty. Whining about it and trying to blame other people is immature. Trying to sic the tax man on the people you bought it from is a douche move.

 

I disagree with you.  My concerns are well placed.  How many buyers bought an impaired vehicle like this that was diagnosed with a head gasket issue and then a flipper ran a quick and temporary fix through it and they palmed off the vehicle on an unsuspecting buyer?  These guys used manipulative tactics in selling and others that I did not mention.

 

The authorities and system exists for good reason.   And tax and other authorities should go after con-artists and rip-off artists.  To brow beat concerned citizens is being an accessory and abettor to immoral, unethical and possibly criminal activity.  It makes those engaging in your type of rhetoric as bad as they are and raises questions whether you have done the same thing, palming off problem material on buyers and making all types of bad excuses when confronted.  You may want to examine your own conscience.   Lemon and other laws exist for very good reasons!

Edited September 20, 2015 by ThosL

[lstevens76]

Actually, Idaho only has a 3 day law on used cars.  Lemon Laws tend to apply to "NEW CARS" not used cars.

 

http://law.freeadvice.com/general_practice/lemon_law/lemon_law_used_car.htm

 

The problem with states going after flippers (Other than those who don't transfer titles) is it would affect normal people selling cars they are just upgrading out of or don't use.

 

I.E. I purchase a new vehicle but the dealer only wants to give me "xxx" trade in and I know it would sell for that so I sell it on my own.

 

But it's also why anyone with experience buying used cars is going to say to get a used vehicle inspection first before you purchase.  A good used vehicle inspection for around $100 would have probably caught some of the problems you are experiencing.

 

Basically you purchased a used car.  You could have bought it from anyone and had major issues within 100 miles that the previous owner didn't know about.  Some people are also really car dumb and have no clue about issues even if another person can walk up and hear it.  

 

You could have purchased that same car for that same price from anyone without the other person knowing there was a problem that you found later.

[idosubaru]

Ok, here is how you get around all of that (other than the taxes).

Personally I seem to flip vehicles just to upgrade. lol  Like right now I'm considering sell my '00 OBS to get a '03 OBS w/ a rod knock to fix.  I might sell it to get a newer one w/ issues as well after I fix it. lol

 

Copy, I had been looking at the laws earlier this summer so it was fresh on my mind for other reasons.  And I'm typically rolling through cars for various reasons too - seasons, kids, rust, work...

[idosubaru]

This is speculation but most of us I don't think lean on legal and government avenues for solutions.  We would purchase cars differently and avoid similar circumstances in the future. 

 

If you can't smell a bad deal easily or easily walk from low priced vehicles, then you would be wise to realize that buying cheap old cars is inherently risky...dealer or not.  Dealers are even more risky in some ways.

 

Here are some examples of how I buy from craigslist and why I'm glad there are lots of sellers on craigslist:

 

Pristine low mileage Legacy - manual trans - $900, not a thing wrong with it, new tires. That was not the selling point for me - it's the two retired professors in a really expensive neighborhood who were tired of driving a stick in the mountains and just wanted it gone and were glad no to deal with a tire kicking weirdo who they wouldn't trust in their home (well that's speculation - they may view me like that>!

 

$900 1999 SUS - leather, excellent vehicle, love that car.  the selling point - the seller was a Doctor, married, busy, about to move for residency and just needed the car gone.

 

$900 Legacy, garage kept, two owner, excellent condition - selling point?  You guessed it - the seller.  Professionals, high up engineer (i'm an engineer too), full disclosure on the car, went to his nice home in a nice pittsburgh neighborhood, I still talk to the guy randomly, i think because we're both engineers - like 7 years later.  Easy to tell the guy was being honest, up front, and wanted an easy deal with someone who isn't scary.

 

I helped friends get a low mileage pristine, one owner H6 Sedan on craigslist - two young professionals, bought the car at their house with the kids running around, needed a bigger car - no way that couple wants the liability of a cheap car on their heads, they don't have the time or want a pissed off local around their kids driving past their house every day.

 

See the pattern?  Best to look at the seller, not the price or the car.

 

But I've also passed up plenty of deals to get those too - I could tell countless stories of weirdo's, unsure about, uncertain, shady homes, shady situations, not up front, don't respond, don't communicate well.

 

I prefer for-sale-by-owner veihcles just for that reason - you can tell exactly why they're selling it and who they are.  If I can't, or there's questions, I can walk.   Particularly for older/higher mileage/cheap cars. 

Edited September 20, 2015 by grossgary

[lstevens76]

IME I've learned that if I'm buying an older car, regardless of where, to look up all the common problems.  Then I "PLAN" for those problems and deduct from the price a reasonable amount if they haven't been repaired recently.

 

i.e. if I'm buying an older subaru w/ a 2.5l I would plan to replace the head gaskets unless it's been done by a professional (or the owner can tell me enough to make me comfortable it was done right).  

 

I also automatically plan for brakes, bulbs, battery, etc... as these are common points most people don't check regularly (you would be surprised at the amount of cars around here driving with at least one bulb burnt out).

 

On top of that I always plan on catching up all the routine maintenance.  I.E. timing belt, plugs, wires, etc.....

[turbosubarubrat]

I've bought stuff and flipped it before for either less, equal, or more money. In Oregon you are required to title a vehicle with in 30 days of buying it if it has a oregon title. After that on the 31st day you are fined i $25 after that on the 60 day it's $50. I titled my hatch over a year after i bought it without paying a late title fee since the date was never filled out and they didn't tell me to fill it out at dmv or even ask me when i bought it. If a car is out of state in oregon there is no law saying when you have to change the title. I had my free 83 turbo wagon for over a year also before i got it running and drive able so i could title it then sell it since i decided i wanted bigger and better projects. It had a washington title so you have to bring the car to dmv to get the vins checked before a oregon tittle is issued. I don't see the point in going to dmv twice so i brought the car through deq then when to dmv to get the title changed, pay for registrations, and tags. If you don't own the car long enough to get the tittle from dmv i wouldn't even bother with it since it takes up to a month to get it in the mail. The 1975 rule for deq is stupid since cars are 40 years old now still going through as collector cars that barely get driven. You can get collector plates but all you can really do with those plates are drive in parades and go to cars shows. In washington emission testing only goes back 20 years.

[ccrinc]

I know that Colorado is very specific in their *6 vehicles per year" laws, but they aren't very good at enforcing it.

 

We flip old Subarus, but only because we buy early '90's Legacys to strip out the engines, all wiring, ECU, etc, etc. for Vanagon conversions and aircraft applications.  The car then goes to the crusher, usually loaded with as much old steel and metal (we recycle everything!) as the frame will bear.  The car is never driven again and therefore, no title or registration is necessary.  However, the junkyards and crushers here require a title when the car is surrendered to keep everything legal and to prove the vehicle was not stolen.

 

Also, we are not in the business of selling cars, just engines. 

[WoodsWagon]

I disagree with you.  My concerns are well placed.  How many buyers bought an impaired vehicle like this that was diagnosed with a head gasket issue and then a flipper ran a quick and temporary fix through it and they palmed off the vehicle on an unsuspecting buyer?  These guys used manipulative tactics in selling and others that I did not mention.

 

The authorities and system exists for good reason.   And tax and other authorities should go after con-artists and rip-off artists.  To brow beat concerned citizens is being an accessory and abettor to immoral, unethical and possibly criminal activity.  It makes those engaging in your type of rhetoric as bad as they are and raises questions whether you have done the same thing, palming off problem material on buyers and making all types of bad excuses when confronted.  You may want to examine your own conscience.   Lemon and other laws exist for very good reasons!

 

Ever heard the term "Buyer Beware"? It applies especially well to buying a used car. There's no lemon law, there's no warranty, and it's up to the buyer to be informed enough to not purchase a junker. "Sold As Is" means exactly that, spot whatever problems you can before you buy, because once you pay for it, you own all the problems too. If you want the protection the laws provide, buy from a dealer, not just some guy off the street. But there's a price premium for that protection, which you clearly weren't willing to pay since you did buy from a private seller. That doesn't leave you much ground to complain when the risk you ran didn't work out. 

 

Since you don't believe in personal responsibility, and you appear to embrace being a victim, maybe you should take the safe route in life and only buy brand new cars. At least that way you'll have a service writers shoulder to cry on while that perfect, problem free, new car is being fixed under warranty.

 

Your throwing around of pseudo legal terms and accusing me of being of questionable morals is pretty pathetic by the way.

[AdventureSubaru]

It is buyer beware, but I've been ticked off a few times over being lied to and can sympathize. I've bought motors from craigslist twice now since moving to California. Both were sold to me as running motors with no work needed and I was assured they were good runners. One had head gasket leak right off the bat. The other, the timing was trashed and had bent valves.

 

So of course in those situations you feel rightly angered that you were lied to and taken advantage of. But you also bear the responsibility of choosing to take someone at their word with no legal protection.

 

Same goes for cars. We can arm ourselves with the know how and ability to spot bad eggs and sleazy sellers. In the end we have to accept the buyer beware and commit to what it is we're buying and the issues that may be present. We are responsible for who we trust. If we get lied to and have to kick ourselves later, while liars and cheats are still scumbags, it's doom on us for letting ourselves trust them in the first place.

 

That being said, I have had many more transactions in which I trusted a person and they were good to their word. Never had a bad deal until living in California. For the $$$ lost on the few bad deals, I've saved so much more on all the good deals I've had. Sound judgement helps but the system is never perfect. I try to be trusting and it has usually paid off.