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Buying and Selling a Vehicle

Buying or Selling a CarMany teens are always on the go and require their own method of transportation.  Buying a car or any other motor vehicle is a taxable transaction. If you are buying or selling a car for the first time, you may be unaware of how taxes are paid for this type of transaction.

Buying a car may be done through a car dealer or from a private seller. These are two different types of transactions when it comes to paying the sales tax. When buying from a car dealer, the transaction is fairly simple. The car dealer will calculate the taxes and title fees into a total amount that you will pay for the vehicle, and the title work will be completed for you.

This changes when purchasing a vehicle from a private seller. You would come to an agreement for the purchase price of the vehicle with the private seller, and when the payment is made, the seller will sign the title of the vehicle into your name. Sales tax is charged every time a vehicle is bought or sold regardless of sales tax paid by a previous buyer.

Selling a car can be done through a couple of different routes. If you are selling your vehicle to a car dealer, just as in purchasing from one, all of the taxes and title fees will be taken care of by the dealer. If you are selling to another individual, then you would agree to a purchase price and transfer the vehicle into that individual’s name at the local county title office. Taxes would be the responsibility of the purchaser and are based on the agreed upon purchase price. It may be wise to create a bill of sale, or a purchase agreement that you and the purchaser can each keep for your records.

Sometimes an individual may not pay for a vehicle with money, but rather trade for another vehicle, other personal property, or services. Regardless of the method of payment, these are still considered taxable transactions.

Example 1:

Joe trades his car for another car of his friend, Matt. When Joe has the title transferred into his name, he will pay sales tax on the value of the car he gave Matt in trade. Likewise, when Matt transfers Joe’s old car into his name, he will pay sales tax on the value of the car he gave Joe.

Example 2:

Betty needs to have a new porch put on her house. She offers her car that she no longer uses to her neighbor, Sam in trade for him to build a new porch for her. Since Sam used to work in construction he accepts the offer and builds her a porch in exchange for the car. When Sam has the title transferred into his name, he would pay sales tax on the value of the porch he built for the trade.

Example 3:

Jane is going away to college and needs a laptop. Her younger brother, Colin just got his driver’s license and needs a car. Since Jane lives on campus she won’t need her car anymore, so she makes him a deal. She trades her car for his laptop. When he has the title transferred into his name, Colin will pay sales tax on the value of the laptop.

Additional Resources

Additional Resources