Not that I actually have, but I look at these contests and wonder. Let us say they are offering a nice BIG SUV for the grand prize. The SUV is listed as being worth retail value of $40K. Do the grand prize winner really win anything, what with paying sales taxes, income taxes both state and federal, added vehicle registration fees, and I am sure there are taxes I am not even aware of. I am also assuming the “retail value” is higher than what I could walk into Big Big Auto Dealership and buy it for. Is this assumption correct?
So how much would I really win? Is the prize worth it?
Well, if the contest is legitimate, then even if you had to pay the sales tax on your winnings (and I don’t know if you do) plus income tax on the value of the item (again, not sure if this is how it’s taxed), plus all the other items, it’s still much less than you’d pay if you bought the item yourself, since you don’t have to pay for the actual item. Yes, you have to pay these charges, but if you went out and bought a car, you’d still have to pay:
Sales tax (assuming your state has it)
Income tax (on the money you earned that you then used to buy the car)
And in my experience (not that I’ve won any of these things, but I’ve seen enough), if it’s a vehicle, the retail value shown will be the actual MSRP, which is pretty fair. Yes, in most cases (there are several exceptions: basically Saturns and cars like Honda Odyssey/S2000 where demand exceeds supply, you pay MSRP or above), you can buy a car for less than MSRP, but it’s not like they’re going to go comparison shopping just to establish a retail value. MSRP is acceptable.
However, many of these contests are bogus; they’re just looking to collect names/phone numbers/addresses. Maybe you’ll win second prize, which may be some cheap piece of jewelry on which you need to pay $20 shipping (hint: if they don’t list a known brand name for an item, chances are the company bought it for pennies a pound), or a free month of Karate lessons (then they try to entice you to buy more).
To add to my response, let’s do a little math. Suppose you won a $40k SUV (to use your example), you’re in the 28% tax bracket, and your state has a 7% sales tax:
Income tax: 11,200
Sales tax: 2,800
Registration:$ $500 (this varies greatly, of course; just a guess)
If you went out and bought that SUV:
Sales tax: 2,800
This is assuming, of course, that you were planning on buying the car in the first place.
If you weren’t, you could sell it. You probably couldn’t get MSRP or even dealer cost, but let’s say you could sell it for $35k (it is brand new, of course). We’ll assume you need to register the car in order to take it home, but you might be able to get around that.
So your $35k less $14,500 still gives you $20,500 in your pocket. And that’s after taxes.
I’ve never won a car, but have won a couple smaller items. The 50" screen TV I won free and clear, as the taxes had already been paid on it. The electric cooler (estimated cost, $130) came with a tax form to fill out. So, yes, even with the cost of taxes, winning big is worth it as you DO end up with more than you started with.
Besides, it gives you great bragging rights!
Be careful entering contests, particularly those at home and auto shows. Sometimes the form you fill out to enter assigns them the right to be your new long distance phone service provider!
I have seen this several times at the auto shows here in St. Louis. Read carefully!
That’s good advice. Always check the fine print…