This is probably enough states that it’s not really uncommon, but only 14 states tax groceries out of the 45 that have a sales tax.
Ohio
Again, Ohio. On non-grocery items.
It’s a subsidy to dealers because the amount they can offer in trade-in is effectively boosted by the sales tax on the trade-in amount. Any other taxable economic transaction, the state gets that money. In car sales, the dealer does.
No, it’s just a subsidy to car dealerships.
Car dealerships are often powerful local and state political entities, and can get nice little tax subsidies written in for support.
I don’t think you understand how this works.
In Ohio, say one concludes a transaction for a $30,000 new vehicle with a $10,000 allowance for the trade-in. Tax is collected from the buyer based upon the difference in the values of the two vehicles ($20,000). At this stage, paying tax on $20-K VS $30-K is a win for the buyer (no?), a break even for the dealer, and a loss for the State. When the trade-in is eventually sold, that transaction is taxed, and the State recoups it’s loss. At no point during this process does the dealer benefit financially from this “tax shuffle”… Much less, encourage them to offer more?? on trade-ins.
Well, it allows the dealer to make [del]more on[/del] it easier to sell the $30K vehicle, since the cost to the buyer is lower. Of course, car dealers are so honest, I’m sure they would never take advantage of that situation and just pass the savings directly to the buyer, right?
I don’t think you understand how it works yourself. The dealership gets to reduce the sales tax paid by the buyer by whatever amount the trade-in value is. That is an additional benefit that the buyer won’t get if they sell the car privately. Ergo, it’s a benefit/subsidy to the dealer because it gives people a bigger incentive to trade in their cars rather than sell it themselves.
Yes, the buyer also benefits from this transaction, but in the end it’s a boon to dealerships because they get more business at the expense of overall tax revenue to the state.
There ain’t no way a reputable dealer is going to let a buyer take delivery of a car with a box of random junk in the trunk.
But it’s a state law, correct? It’s not like the dealers can withhold the tax break. They have to give it to you. Furthermore, you’ll still come out better in most cases selling your car privately than trading it in, but many people don’t want to deal with it, don’t want to wait to sell it or whatever. It’s a convenience to trade your car in. A lot of the time, peoples cars also need some kind of major maintenance (brakes, tires, check engine light on, etc) that they don’t want to pay for since they know they are getting a new car. A dealer will take that car almost 100% of the time, but a private buyer would balk at paying retail for a car that they know they are going to have to immediately turn around and sink a bunch of money into it.
I checked craigslist for VW GTI from the Mark IV generation. I’d say what are these people smoking, and where did they get it, but this is Colorado, so I can answer both of those questions.
I mean, $4-6000 for an almost 20 year old VW with 150,000 miles, or has been modified and raced? I’d sell my car today if somebody offered me $6000. Obviously these are the ads that have been up for 3+ weeks, so either haven’t sold, or have sold but get so few inquiries the original poster hasn’t bothered to take them down, but they’re the only ones available at the moment. I know I need to check every day or two for sane ads which will sell and disappear, and I’ll do that once my new car is ordered.
Yes, this exactly.
I’m still driving the car so I fix what I have to. I just replaced the battery, but no way I get back the $300 to fix the drivers door so the light comes on when it opens. That will stay broken.
I think I’ll just include the USB adapter to load files on to the MP3 player. Perhaps if it’s in a bag with the owners manual, MP3 player manual, etc. Maybe I’m being too concerned about the future buyer, but without this part they’re going to have to listen to only my music, because there’s no way they can get the adapter now. I don’t even know if it works on Windows 10, but that’s not my problem.
Well, one of us doesn’t understand how it works. The math on this isn’t that hard, so let’s clear it up.
Option 1: I sell my $10k car to the dealer, and buy a new car for $30k. I pay tax on the difference. The dealer eventually sells my $10k car to some other guy, and they pay tax on the $10k. Total tax paid by all of us is whatever the tax on $30k is.
Option 2: I sell my $10k car directly to the other guy. They pay tax on $10k. I buy a $30k car from the dealer. I pay tax on $30k. Total tax paid by all of us is whatever the tax on $40k is.
Now, in reality, the used-car sell prices won’t be exactly the same. Because effectively what the subsidy allows is for the dealer to pay a lower price for the trade-in because the trading-in customer will value the offer at offer+tax. The used-car buy prices won’t be the same either, because the dealer is going to make some profit on it, but that’s mostly irrelevant to the issue of a tax subsidy.
Ultimately the state is missing out on the tax from $10k worth of car, and the dealer is getting it.
Used GTIs hold their value well because they’re relatively rare and enthusiasts want them. Sure, they’re just economy hatchbacks, but they’re also desirable family hatchbacks.
Thanks for pointing out the State’s loss in revenue per your option #2. However, your conclusion that the dealer pockets this tax loss perplexes me. The execution of the math isn’t problematic, but we seem to be at odds over the interpretation of the result.
I believe this is what I previously illustrated.
1/2 correct. It’s a two edged sword here. As you state, it is an incentive… but with that incentive comes a dis-incentive, i.e. the big hit one suffers with dealer trade-in value. A private seller of a used vehicle will get much more than the dealer offers. So all in all, it’s a wash incentive-wise.
Yeah, (also as I previously stated) it’s a benefit to the new car buyer: Particularly those who don’t want the hassle of selling their own used car. However, to characterize it as a “boon” and “subsidy” for dealers is a bit of an overstatement.
Keep it real. Sure, dealers take advantage of every twist and turn to increase their take. But the notion that a new car buyer is in the showroom primarily due to this tax shuffle (whom otherwise wouldn’t be there) defies logic. One who intends spending $30-K (and up!) on a new vehicle wouldn’t typically find this scheme (or lack of it) a make-or-break issue in their decision. They are going to buy, irrespective of tax liability.
And yes, the dealer will beat us out of every penny possible… That’s the game.
Not sure if this is true in other states, but Florida allows private sellers to take advantage of the trade-in sales tax deduction too.
Of course, it’s unlikely that a private party sale is going to involve a trade-in.
Interesting. I can visualize circumstances where Florida’s regulation could be beneficial if the buyer’s trade was of lesser or equal value to the sellers price.
Unfortunately, not in Ohio.
Fair.
So, there are 4 players in that scenario: seller, dealer, new buyer, and state.
We already agree that neither the state nor the new buyer end up with the surplus from this arrangement: The new buyer pays the full tax on $10k regardless, and we already agreed that the state ends up with tax on $10k less.
So either the seller or the dealer gets that money (or they split it).
To show that it’s the dealer that gets it, let’s imagine that this special tax-deal doesn’t exist, and I’m going to have to pay tax on the full $30k price. And for simplicity, let’s imagine that the tax rate is 10% (it doesn’t matter, but for examples, nice round numbers are easier than algebra). So, I know I’m going to pay $33k less whatever I get for my trade-in.
We know from our universe that I’m willing to pay $22k total (plus my old car), since I did (I paid $20k + tax on it). So, in order for parallel-universe dealer to get me to make the deal, they’d have to offer me $11k on my trade-in, or somehow convince me to pay an extra $1k. Presumably if they could have convinced me to pay more, they would have (they’re good at it!) So that mostly leaves that they’d have to offer me more.
Now, you might argue
- Car buyers are not very rational
- Car buyers might be willing to pay more since they know the tax is there.
And those are both sort of true, but mostly not. There are a lot of tricks in the car sales game. If car buyers were rational, you wouldn’t see those inflatable dancing men on the side of the roads at car dealerships, or quite so many balloons. On the other hand, in aggregate, car buyers are very rational. The margin on new car sales is pretty low. And while car sales might be different, there’s lots of evidence that tax rates matter. When the taxes on something go up, people buy less of it. So maybe the buyer gets a little of that surplus, but the dealer gets the vast majority of it.
I’m more at a loss now as to your viewpoint than before. The abstraction you present (that is based upon assumption), is for me difficult to follow, much less agree with.
To me it seems obvious: The new car buyer benefits… The State looses… The dealer; meh?.. It depends on perspective and the weather. YMMV.
I’m afraid we’re just going to have to “agree to disagree” on this one.