I suppose whether it’s flagged might depend on the area* or the specifics - a $1 sale wouldn’t look off to me after reading this thread , but selling a car worth $10K for $1K would still look like someone was just trying to avoid tax.
*A $1 sale is not common here. Doesn’t mean people don’t do their family and friends favors - just that they tend to be either selling a car worth $1000 for $500 or outright giving the car away. In fact the idea of selling the car for $1 is so alien to me that I wonder if you are referring to selling the car at some other price and simply filling out the bill of sale as if the price was $1
Not sure what you meant, but the transaction wouldn’t be flagged if the appropriate taxes were paid (on the market value of the car, and not the $1 sale price).
I don’t understand - what would be the point of a $1 sale if the the taxes are supposed to be paid on value of the car rather than the sale price? In fact, if the taxes are supposed to be paid based on the value of the car rather than the sale price, I’m not sure why the government would even require documentation of the sale price.
This is one of those things that probably varies across the country. In my experience, a car with a $1 sale price is a gift; some people will jokingly pay the physical dollar, while some don’t bother.
I just did a little research, because I realized that I didn’t know anything about the origins of the custom. It turns out that some jurisdictions have a gift tax that can be avoided by naming any sort of sale price, so that may be where the custom came from.
This is one of the many reasons why so many of us who live in saner countries regard the US of A as weird.
If I wanted to buy someone a car or a yacht or a house as a present the government would not take the slightest interest, so long as it wasn’t connected with business. What I do with the money I paid tax on is none of their damn business.
There are circumstances where a small token coin like a pound may be appropriate in contract law, where I might pay for some promise and a nominal consideration will make it enforceable in law.
I don’t know what you mean by “saner” countries but I believe most high and middle income countries have inheritance taxes and “gifts” are the #1 method of avoiding or evading them, so governments have an interest in tracking those.
But in the case of cars the bigger issue is the $1 sale that is actually a $10,000 sale with $9,999 changing hands in cash to avoid the sales tax, as far as I know, me selling my 2012 Honda Accord to my brother-in-law for $10,000 means a $600 tax upon registration in his name (or titling, more likely). If we are trying to avoid this by pretending that he gifted me $9999 and I sold the car for $1, that’s garden variety tax evasion in any sane country.
I checked and found only one state that currently has a gift tax - Connecticut. And the gift tax there is based on the market value of the property less the sales price - if you sell me a car worth $1000 for a dollar, you have given me a $999 gift, while if you give it to me without payment, you have given me a $1000 gift which is a distinction without a difference. *
I did find this from PA, though
Vehicles received as gifts are not subject to sales tax. However, the recipient of the gift must show that either the purchaser paid sales tax on the vehicle at the time of purchase or he/she paid use tax on the current fair market value of the vehicle in order to register the vehicle in Pennsylvania.
In many instances, taxpayers are incorrectly informed by licensing agents that a minimal purchase price (e.g. $1) must be reported on the MV-4ST, even if the vehicle is a gift. This is not correct. The listing of a nominal purchase price often triggers a transaction review by the Department of Revenue because the nominal purchase price is substantially less than the fair market value of the vehicle.
When registering a vehicle received as a gift, the taxpayer should fill out MV-13ST, Affidavit of Gift. Proper completion of this form usually prevents the transaction from being referred to the Department of Revenue for review.
* And even then , CT gift tax seems to be similar to the Federal estate/gift tax , where taxes are only owed on the value of gifts/estates over an amount that most people will never get close to.
State and Federal governments in the US typically don’t care what you do with your money either - except when it amounts to evading either estate taxes or sales taxes. The UK may not have any sort of sales tax or VAT for private vehicle sales - but your estate can apparently end up liable for estate tax on gifts given less than seven years before your death.
And like Mighty_Mouse said, the biggest issue with cars is when the buyer and seller agree to lie about the sales price on the paperwork. Which sometimes bites the buyer in the ass - I’ve seen multiple episodes of those TV court shows where the buyer is suing the seller for a refund for some reason and the amount the buyer claims to have paid is more than is stated on the bill of sale. I’m not going to guarantee what will happen in the TV shows - but in an actual court, if the buyer wins they will only get the documented sales price.
In the UK there is no sales tax on used private cars. The tax (VAT) is paid on the initial purchase and that’s it. Different rules apply to vans and cars for business use as they can offset the VAT against sales, so subsequent buyers have to pay at valuation.
I am aware of that. But that doesn’t make the UK more “sane” in any meaningful respect.
The aspect of US tax policy that IS insane is the attempt to tax worldwide income of its citizens (residents?). At least that leads to all kinds of problems.
But having an interest in whether or not transactions are occurring at fair market value or contrived to evade tax is not insane. Unless you start with the premise that the British (English) method is the only reasonable one.
There are many things wrong with the British tax system, but it seems unfair to tax the sale of a car, or any other good, twice or more. The tax is paid when the item is first purchased and the Inland Revenue has no interest in further private transactions. Of course, if there is a business involved, different rules apply, but even when I buy a car from a dealer there is no tax, although the dealer will be taxed on their profit.
This is interesting and weird. In VA, a parent can give a car to their child with no sales tax as long as you fill out a form. A chilld can’t give a car to a parent without a tax, but they can sell it for $0.
Gift of a vehicle from child to parent
There is no Sales and Use exemption available for a gift from child for parent. Such a transfer is subject to a fee of 3% of the sales price or $35 whichever is greater. You can document the sale at $0.
You would think this would be avoidable when swapping cars. In Canada (or Alberta at least), when you buy a new car and trade in an old one, the trade in value is deducted from the purchase price before tax is added. This seems right to me, as you should only be taxed on the value gained. If I trade in a $20,000 car and buy a $30,000 car, my net expenditure and value gained is $10,000, and I’m only taxed on that. If I trade a car for one of equal value and owe nothing, I pay no tax.
A car swap of two equally valuable cars does not result in financial gain for anyone, and there should be no tax. Is there no equivalent deduction for trade-in value in the US?