This is the answer to the OP.
Well, if my math and counterfactuals weren’t convincing, I have one more argument to try: Those tax rules exist because car dealer lobbying groups have convinced legislators to add them. They probably did not do this out of the goodness of their hearts to save new car buyers some money. They did it because they make more money with them.
Here’s a story about a recently-passed bill in Michigan that adds this subsidy.
The fact that dealers and manufacturers are for it doesn’t make it a subsidy. If less money is changing hands, it follows that there should be less tax on the transaction. It’s just that part exchanges are uncommon outside auto sales.
Guys, it’s NOT a subsidy. Yes, the dealers lobby their respective states for it because it drives business, *helping the dealers sell more cars *and encouraging people to trade their cars in instead of selling them themselves. It’s really that simple.
You know where the big money in car sales are? USED cars. So, it stands to reason that the more clean trades that a dealer can get, the more markup in aggregate there is. Again, the average markup on a used car is generally $4-5000 over what they own it for, AFTER it goes through service and gets it’s used car inspection (required by law). The results of the used car inspection are presented by the service department to the used car manager and he decides what, if anything (other than an oil change) will be repaired. Obviously he’s going to trim the fat from the service report to try to save money, and the service department will list EVERY little thing that they think the car needs in the hope of fixing, replacing, whatever, ALL of it, because THEY work on time-based commissions and the more work they have, the more money everyone in service makes.
ETA: anything safety related (tires, brakes, check engine light indicating imminent catastrophic mechanical failures, etc) HAS to be fixed by law. There are state mandated minimums the dealer has to abide by, like a minimum thickness of brake pads, tread depth on tires, whatever. Dealers obviously try to skimp on this as much as they can to preserve profit in each unit, but if the tires are bald, the brakes are shot…it gets fixed. UNLESS it’s a POS sled and that the customer that traded it got $500 for it, it’s got a gazillion miles on it, it needs more work on it than it’s worth, etc…those cars go straight to auction and are sold as is. And even then, the dealer makes a little bit of money on each one of those, most of the time, but the money is generally counted in the hundreds rather than thousand of dollars that they would get selling a clean used car.
That’s not how taxes work. The method of payment isn’t relevant. Paying for goods in-kind is still taxed.
If you come to an agreement with a car dealer to give you a car in exchange for 500 chickens, you will still owe tax on the market value of that car.
On the federal level, yes. But I’m not sure that is true on the state level.
One way to look at it:
I’m able to spend $20K on a replacement car after my trade-in. That’s total after all taxes. That’s my budget and there’s no more pennies available.
There are two possible calculations, one of which has more tax and one of which has less tax. The less-tax one allows me to buy an extra $300 or whatever worth of car for my $20K.
Whether that translates into me getting a slightly nicer car or the same car at a slightly higher dealer margin is up to our respective negotiating skills.
Either way the state is getting $300 less than they would under the other calculation. And the dealer and I are splitting the $300 of value somehow. Perhaps $300/$0, perhaps $150/$150, and perhaps $0/$300.
If I had to bet on negotiating skills I know which way I’d bet.
There certainly is some economic / accounting logic in paying tax only on the net. It’s not just flim-flammery.
This is an odd sort of transaction in that you, a retail person, are selling something to a wholesaler. This is the opposite of a normal retail transaction and so it makes some sense to tax it opposite too. You paying tax on the net amounts to you paying tax on the new car gross and also paying “anti-tax” on the trade-in gross.
Mostly. Anything that came with the car when new will usually be in there- manual, jack, etc. Perhaps maybe a few parts and a new shop manual might be left. My Bro did find a new hydralic jack in a used car from a dealer.
Thanks for all of the responses. The consensus seems to be that at some point everything will be tossed, but I haven’t seen anybody posting from a position of authority. I asked this in GQ, because I wanted a factual answer (as best as can be factual, because policies might differ from dealer to dealer and state to state). What I wanted to see was:
In my experience, which consists of being the guy standing around the service area waiting for his car, the guy prepping and cleaning cars is the lowest paid employee at the place. It probably depends on his boss whether he’s given discretion to leave things in the car that seem useful, or told to toss everything that doesn’t have a Mazda logo on it (or whatever brand).
Second would be to hear from people who’ve bought lots of used cars. I’ve never bought a used car, only used motorcycles. There aren’t many places to put extra stuff on a motorcycle, but both I’ve bought have come with random stuff that was left on the bike, like a patch kit, or non-stock tools in the toolkit. The consensus from people who report buying used cars, is that sometimes they have stuff, and sometimes they don’t.
My guess is that the real answer is, there’s no way to tell what any seller is going to do with stuff left in the car.
That lowest paid guy cleaning the car before it goes out on the lot is going to take anything of value for himself. Like LSLGuy said, typically the only things left in the car are whatever is relevant to the car. Not all trades have manuals, for instance…but every car manual is available online as a PDF.
Don’t be ridiculous. We’re talking about a sales tax abatement based upon the difference between a new car price and a used car trade-in… Not some silly morph from a legal tender transaction into a livestock barter.
If I can decipher and get the drift correctly, you guys feel that dealers manipulate their new car prices upward in an effort to (indirectly) capture the tax break the buyer enjoys? If so, don’t y’all find this scheme circular and nearly impossible to come to terms… with yourselves?
I prefer to concentrate my new car purchase efforts on things I know to be fact and have some degree of control over, not on things imagined of which I certainly have no control.
If you choose to become butt-hurt over a nice tax break when you purchase a new car in Ohio… Have at it.
I can say with absolute certainty that there’s no upward manipulation of new car prices to offset the tax break. New car prices are set by the MSRP, less any rebates or discounts that you may or may not qualify for.
The dealer only gets a portion of the rebate money back, which is why when a vehicle is already heavily rebated, they will balk at below invoice pricing. They need their holdback in order to survive with new car sales.
This has nothing to do with a trade, but most people, as long as their trade isn’t total trash, get a tax benefit so the new car sale can proceed.
I have no position of “authority” but I do know from experience:
“Clean one owner” read: “valuable” cars typically stay on the trade-in dealer lot for resale, and are in immaculate condition. Normally, they don’t contain repair/maintenance parts or equipment as you describe.
Otherwise…Cars that go to auction typically are in the condition that they were traded in, (as is) including the French fries in the console and the $25 bottle jack in the trunk. Cars that go to auction are not considered desirable to the (usually) upper echelon dealers, that is why they send them to auction. When lower echelon dealers purchase these auction cars, they clean and repair them (to varying degrees) for resale in their used car lot. Perhaps the front brake pads left in the seat prior to auction will be utilized, perhaps not… Perhaps the detailer pockets them, perhaps they go in the trash. There is just no applicable rule that will ensure your stuff will “go to a good home”. It generally has no value to auctioneers, or the buyers of such… Sorry.
DAMN! I hate to clarify, especially when your comment supports my contention but:
I was not referring to the MSRP but rather, the agreed upon sell price.
No butt-hurtness here. I find your hostility confusing.
All I am suggesting is that in a world with a 20% sales tax on new cars they’ll sell fewer cars than they would in a world with a 2% sales tax on new cars. And those cars they do sell in the 20% world will have less “fat” in the prices. Folk’s budgets only go so far and high tax environments push the product market towards lower-priced products. And towards lower margins for everyone in the supply chain.
That’s all Econ 101.
The effect of a state choosing to charge sales tax on the net vs gross is simply a (small) reduction in the effective sales tax rate on new cars. Which will in turn have a (small) stimulative effect on the overall market for new cars.
You’re right that any given state has whichever rules it chooses. Some states choose net, others choose gross.
It’s not like one can shop for a favorable tax venue for cars. We do know that historically there *was *lots of shenanigans about people buying cars in low-tax states and importing them into high tax states on the QT. Modern computerized recordkeeping and interstate reporting pretty well killed that play back in the 1970s.
We also know that for other major purchases, e.g. furniture, a brisk cross-border business develops wherever the state sales tax rates are different enough to make tax arbitrage profitable to the consumer.
There’s nothing deeper here. And nothing nefarious. Markets will respond to the rules in effect. So we’d expect different rules to produce different responses in what’s otherwise a homogenous national market for any given factory-new car.
I asked my Dad who has bought and sold, I am not exaggerating, perhaps 100 used cars in his life. Many were when he owned a gas station/garage and would repair and resell cars on the side. It wasn’t really a used car dealership but he sold a dozen or so per year. If someone left parts, service manuals or other freebies in the car, he took them out. He doesn’t remember whether anyone ever had service records for the car but he said he would probably have thrown those out too.
When he’s bought used cars from dealerships (probably about 20 cars for him, my mom, and friends and family members in the last 25 years), he has never received anything other than the tire changing tools that came with the car and the owner’s manual. Presumably anything else was removed from the car before sale.
The only included accessories I’ve ever seen with cars on dealer lots are service records, and that was only from a couple of Porsche dealerships. I’ve probably seriously shopped a universe of about 25 or 30 cars from dealerships so maybe I haven’t shopped enough to come across dealers that would keep those things with the cars.
I also asked a friend who was a lot boy 10 or 12 years ago for one of the biggest dealership chains in New England. That will be as close to a definitive answer I can give for you. I’ll let you know if I hear back from him.
I’m not being ridiculous.
The post I responded to claimed that the tax wouldn’t be owed on the whole price because part of the price was paid in-kind, and you only have to pay taxes on things you use money to buy.
That’s just blatantly incorrect. It doesn’t matter how you pay for something. A barter trade is just as taxable as one made with money. The example with chickens is meant to be humorous illustration. But, again, it doesn’t matter how you pay for something. It’s still taxable.
No argument. And the further the parameters are exaggerated, the more evident this becomes. The trick is to keep the parameters realistic before arriving at a conclusion. Probably covered in Econ 203.
No argument. At least we’re back to Earth now, and considering realistic terms.
(emphasis mine)
You’ve stated the point I’ve been attempting to make all along.:smack: Perhaps I need lessons in composition.
I’d add (in Ohio’s case) that the overall effect on sales spanning the years has been minimal.
Lumping your comments in with my take on other’s notions was unfair on my part. See above about composition lessons.:o
All good. Sometimes in the pursuit of thoroughness I totally camouflage my simple point in a big honkin’ wall o’ words. I figured that’s what happened.
You know one thing that a dealer will 100% always throw out on a used car before it goes out on the lot? The original window sticker, if it’s in there. They do NOT want you knowing how much the car sold for when new. Which is weird, because, well…internet.
I guess they’re still hopeful that a few rubes will slip through the net.