Tax ? on vehicle trades...

[Randall53]

I've read the TN tax info on auto's but couldn't really understand what happens in individual non dealer trades.  My question is who pays taxes on a trade where one party trades a vehicle and gives money to boot.  Say one vehicle is valued at $7000 and is being traded for a vehicle valued at $12000 and a deal is made that includes $5,000 difference?  How would the taxes roll in this deal for each individual? I"m thinking about doing a deal similar to this and I'd really appreciate any info.

 

edited to add: I have the $12,000 vehicle.... :snore:

 

Thanks!!

Edited June 22, 2014 by Randall53

[gregintenn]

You are responsible for paying tax on the $5000 spread. Most people lie about it. Even trade?

[RED333]

When you get your tags for the first time, the title will have a dollar amount on the back, that is what you pay taxes on.

Some put 500 dollars, some put the price they paid for it, as a trade, you will have to put a value there.

[hipower]

The last time I did one of these deals, the clerk wouldn't accept the value I listed for the vehicle. Said that it had to be an approximation of current values,  couldn't just write in any figure at random. And the clerk has access to all the "fair market value" figures from auctions and the like.

 

They may or not allow you to set your own figures.

[tnguy]

Yep, they'll check the book if they think you're off. You're responsible for the full amount, not just the "spread" either. Though personally, I think sales tax on used vehicles is BS.

 

The one time I had this happen, it really was a cheap POS I had and they ended up accepting the price :)

Edited June 22, 2014 by tnguy

[gregintenn]

Yep, they'll check the book if they think you're off. You're responsible for the full amount, not just the "spread" either. Though personally, I think sales tax on used vehicles is BS.

 

The one time I had this happen, it really was a cheap POS I had and they ended up accepting the price :)

SO you're saying that both parties will have to pay sales tax, even though one of them didn't spend any money? Would that be the same with an even trade? Are you sure?

 

I am certain that in the past when I've traded vehicles, I only paid sales tax on the spread; not the vehicle value. Has that changed recently?

Edited June 22, 2014 by gregintenn

[RED333]

Rant on "What gets me is the taxes have been paid on the item already, why do we have to pay it every time it changes hands?" rant off

[TripleDigitRide]

State Sales Tax is 7% of purchase price less total value of trade in.

I've done this with a motorcycle, and I was required to pay taxes on the spread. If I remember correctly, they wanted the VIN from both motorcycles.

[vontar]

Yep, they'll check the book if they think you're off. You're responsible for the full amount, not just the "spread" either. Though personally, I think sales tax on used vehicles is BS.

 

You think that is bad.  Some states charge a tax on the value every year.  My uncle was glad when he moved to TN and found out it wasn't like that here.

[tnguy]

SO you're saying that both parties will have to pay sales tax, even though one of them didn't spend any money? Would that be the same with an even trade? Are you sure?

 

I am certain that in the past when I've traded vehicles, I only paid sales tax on the spread; not the vehicle value. Has that changed recently?

 

Well, I'm no lawyer or tax professional so I'd be happy to be proven wrong but usually it's called "payment in kind" and is subject to taxes based on an honest valuation. Now, there may be specific exceptions in this case but I'd lay money that there isn't.

[tnguy]

You think that is bad.  Some states charge a tax on the value every year.  My uncle was glad when he moved to TN and found out it wasn't like that here.

 

Yep. I'm aware of that also. Those states are automatically on my "would not consider" list of places to live.

[tnguy]

State Sales Tax is 7% of purchase price less total value of trade in.

I've done this with a motorcycle, and I was required to pay taxes on the spread. If I remember correctly, they wanted the VIN from both motorcycles.

 

Interesting. It gets more and more convoluted. Presumably this law was written by car dealers.

[tnguy]

We're on a list of states that allow a tax credit so there you go.

 

http://www.realcartips.com/selling/010-states-that-allow-trade-in-tax-credit.shtml

[TrickyNicky]

A friend of mine traded me a car for a case of beer once. Seemed like a good idea at the time, but did take a bit of explaining when I went to get it registered. Had to put water in constantly, but other than that it was one of my favorite cars too. Wish I still had it. Early 90's Subaru Legacy wagon. Great car.

[DaveTN]

I think this answers the question it is from "County Clerks Sales and Use Tax Guide to Automobile and Boat Transfers" from the state.
The first part of it talks about who is exempt and who is not. But this part is from page 5.
http://www.tn.gov/revenue/countyclerks/salestaxguideautoboats.pdf
 

When an item of tangible personal property is
taken in trade as a credit or part payment on the
sale of new or used articles, the sales and use tax
shall be computed and paid on the net difference
between the sales price of the new or used article
sold and any credit actually given for the used
article accepted in trade. [Tenn. Code Ann. Section
67-6-510(a)]

Before any credit may be allowed for items
taken in trade or trade-ins, the item so traded
must be of a like kind and character of that
purchased, and indicated as “trade-in” by model
and serial number, where applicable, on an
invoice given to the customer. [Tenn. Sales and Use
Tax Rule 1320-5-1-.02]

There are no other general limitations to the
trade-in process. Neither the statute nor the rule
requires that proof be given that tax was paid
previously, whether in Tennessee or in another
state, on the traded in item in order to receive
any trade-in credit. Further, the statute applies
to all trade-in situations, not just to motor
vehicles or boats

Edited June 22, 2014 by DaveTN

[Spiffy]

The last time I did one of these deals, the clerk wouldn't accept the value I listed for the vehicle. Said that it had to be an approximation of current values,  couldn't just write in any figure at random. And the clerk has access to all the "fair market value" figures from auctions and the like.

 

They may or not allow you to set your own figures.

 

I was told you needed a bill of sale with the amount on it or they went by the blue book value.

[Ted S.]

Always found it quite an impressive racket when someone in a used/trade transaction has to pay additional taxes on something that has already had taxes paid on it.

[Hershmeister]

[quote name="Ted S." post="1161575" timestamp="1403476918"]Always found it quite an impressive racket when someone in a used/trade transaction has to pay additional taxes on something that has already had taxes paid on it.[/quote] You just described our entire country's tax system

[alingo2001]

My wife's brother-in-law had an interesting experience in Arkansas. He bought his plane when they lived in Alabama and when they moved to Arkansas 2 years later, he had to pay the difference of the higher taxes on the plane in Arkansas. I thought that was ridiculous.

[MudBugjr]

There is an affidavit you can download from Tn.gov. There is a section on trades and values etc. that way you can pay tax on cash exchange or even lower selling price Edited June 24, 2014 by MudBugjr

[2.ooohhh]

Vehicle tax in our county is terribly randomly enforced. I paid $100 for a 1971 VW bus sans motor that I pulled out of a farmer's field and they want to argue that it's worth at least $2500, I roll in to get a title for a 2003 BMW with a blown engine that I picked up at scrap value and they are fine with listing/taxing the $200 paid on that. (I had paperwork to back both purchases up)