I realize in advance this is more of a legal question than a car question, but I bet someone here has been in a similar situation.
Recently, I bought a non-running '04 Mazda Tribute off of a friend of a friend for scrap value. I was able to fix it rater cheaply. (Turns out that the plugs hadn’t ever been changed, and the resulting misfire partially melted the upstream cat, plugging the downstream cat.)
I bought it for $500, have $500 expenses, and want to sell it for $3700. Now, I’m aware of “curbstoning” laws against unlicensed used-car dealers, but there is a yearly (3 sales?) exemption for me…and my wife…and my son-in-law…etc. Still, I would have to pay sales tax of 7% ($35) on my purchase.
I had also thought about setting up a registered business in PA, versus continuing as a “D/B/A,” for legal and other reasons (mostly unrelated businesses). Would filing as a business get me that “sales tax exemption” that repair shops use at the parts store…and on sale of this auto? Might be worth my while, then, to do this now rather than later!
The sales tax on your sale of the vehicle will still be owed whether you have a business or not. That’s owed by the buyer, though how it is collected varies, and could fall on you to collect if you have a business where with a private sale it’s the buyer’s responsibility to pay it. You might get out of paying sales tax on stuff you buy for resale, but I don’t think your ‘business’ would look like one to any agency if all you’re doing is buying and flipping a handful of cars per year. Of course, they may not notice.
Well, I do a lot of other things, too: handyman, lawncare, scrap hauling. I don’t spend a whole lot of hours on any one thing, but all of them together keeps me busy.
I filed schedule C for 2013 and probably will again next year.
A least in this state, sales tax only enters into it for private sales when it comes time to register the vehicle. It’s up to the purchaser at the time of registration to show proof of payment to the state. Dealers provide that proof for you when you buy it from them as it is they as a licensed dealer who is responsible to turn the tax money over to the state. The new owner is responsible on a private sale. If you have not registered the car in our state, you are not responsible for the sales tax…only the buyer who registers the car. When they go to register the car, the town in which they register the vehicle should explain how they fulfill their obligation in their state. If this is your only planned endeavor in this area, I would not complicate things any more then they are for private sales of automobiles. Go to your town office in your state to get specifics. At least in our state, until registration, a car is just another commodity for tax purposes.
Rampant cheating has made it almost impossible to pay the real tax owed when you get a deal on a fixer upper. Two states I have lived in will default to the average blue book value and charge accordingly. It’s almost an act of congress to get them to accept any other valuation…it’s no longer worth the hassle for me.
Check with your state. Here in Michigan you can sell up to 5 vehicles in one year before you need a license. As long as you put it your name and pay the tax on what you paid for it. This may have changed but this is what is was.
You’re going to have to tell us the state you are in to get more useful info. Where I am my resellers permit allows me to buy parts used in the course of repairing automobiles, and then I am bound to collect sales tax on those sales. If I wanted to sell used cars I would need a different permit. There are also other penalties for not transferring title to your name within 15 days unless you are a licensed dealer. But I imagine laws vary from state to state.
“Curbstoning is loosely defined as the repeat practice of motor vehicle buying or selling without a dealer license.”
I have lived in several states where you could buy and sell cars from as little as 4 up to as many as 12. It was fairly easy to flip a vehicle until the laws caught up with the practice. I used to build V8/V6 Vegas and S-10’s until insurance companies put the kibosh on that practice for the most part. I always registered the vehicles in my name and paid all taxes before selling them. GEICO finally sent me a nasty letter threatening to raise my fairly cheap insurance rates…so I stopped building them. It was fun while it lasted.
@asemaster: Yes, it was Pennsylvania I was talking about. I mentioned that in the original post, but I guess I shouldn’t have used the postal abbreviation.
I know businesses employing people in PA use an 8-digit code on W-2s…I also know theres a PA-100 form. I just don’t know what the “tax-exempt” criteria are. (I know they only try to collect tax on the end user…they don’t tax auto repair shops, because the shop collects sales tax on the end when they bill the customer.)
Statutes vary by state so it might be a good idea to clarify this with a local DMV. One would hate to be put into the position of a title jumping accusation.
I think the limit in OK is 6 cars but that doesn’t mean the cars can be resold without having the title brought into the name of the seller and paying the obligatory fees and excise taxes.
Over 20 years ago a friend here in OK was needlessly arrested (twice on the same deal) on a title issue regarding the casual resale of an old classic car and ended up paying a hefty fine over what should have been a non-issue. Cover your bases just in case…
I wholeheartedly agree with OK4450; states are all different, and you can only be certain of getting the right answers for your state by checking with your state offices. I don’t know if it would be the DMV or a department of taxation, but your state house should be able to direct you to the right office.
