What Taxes Do I Pay on A Private Purchase??

[NSXaholic]

Guys, I'm very, very confused. I am thinking about buying another high-end car, and I have been trying to get my hands around what taxes I would have to pay. I would be buying this car from an out-of-state private seller (an individual -- not a dealership).

I've talked to about fifteen different people -- from dealers to private individuals -- and have gotten about twelve different answers. It's becoming an exercise in frustration.

I know when I buy from a dealer, I'm responsible for the full 8.75% here in Illinois (8% state and 0.75% county), but I find it hard to believe that if I buy from a private individual (in-state or out of) I would have to pay full taxes yet again on a vehicle that somebody else has already paid taxes on.

Some of the answers that I received were:
(1) Have to pay full 8.75% tax again;
(2) Only have to pay a 2% (or 3%) flat tax based on sales price;
(3) Need to pay taxes that are maxed out at $1,500.

I tried searching the archives, and I did find this link, but the issue seems unresolved.

Additionally, I searched online and found the following quote on the Illinois DMV site:

5. Check if vehicle use tax must be paid. Tax must be paid on all vehicle sales between individuals. The amount of tax is based on the model year of the vehicle if the selling price is less than $15 thousand or on the selling price if it is $15 thousand or more but this doesn't mention how much, or issues with buying from out-of-state buyers, etc.

If anybody has experience -- even if it is not Illinois state-specific, please, please let me know. This is a highly confusing situation.

Regards.

 

[D'Ecosse]

http://www.sos.state.il.us/departments/vehicles/faq.html#reg

Check the Title FAQ's at the bottom.
Most states charge sales tax on vehicles, regardless of where you purchased it. Is that a rip-off? That's government for you!
http://www.sos.state.il.us/departments/vehicles/apply.html

If you recently purchased and have not titled or registered the vehicle you are bringing into Illinois, you must complete a tax form. If purchased from a dealer, you must complete Tax Form RUT-25. If purchased from an individual, you must complete Tax Form RUT-50. One of these forms must be presented with a separate tax payment made out to the Illinois Department of Revenue at the time you apply for Title and Registration

 

[milz50]

Hi NSXaholic,

You will need to submit the following form (RUT-50) when registering your vehicle. This is used for all private party previously titled vehicles.

http://www.revenue.state.il.us/taxforms/Sales/rut50taxchart.pdf

This form should be easy to follow, but let us know if you have further questions.

When I purchased my NSX a couple of years ago for ~32K, I had to pay $1500 in tax. This is a little less than 5%, which wasn't too bad.

Hope this helps,

Matt



[This message has been edited by milz50 (edited 30 November 2002).]

 

[NSXaholic]

Originally posted by milz50:
Hi NSXaholic,

You will need to submit the following form (RUT-50) when registering your vehicle. This is used for all private party previously titled vehicles.

http://www.revenue.state.il.us/taxforms/Sales/rut50taxchart.pdf

This form should be easy to follow, but let us know if you have further questions.

When I purchased my NSX a couple of years ago for ~32K, I had to pay $1500 in tax. This is a little less than 5%, which wasn't too bad.

Hope this helps,

Matt

[This message has been edited by milz50 (edited 30 November 2002).]

Actually Matt, this is really helpful. I didn't know that the RUT-50 form was available online, and that the amounts are clearly stated (why are there two columns??).

I think my reasoning has borne out, in that you pay a minimal amount of tax on the car (ie, less than the 8.75% tax you pay the dealer) if you purchase a previously titled car -- with a maximum cap at $1,500. Obviously, the higher the cost of the car, the lower the percentage the $1,500 becomes of the overall purchase price.

Phew!! Paying another 8.75% on a high-end car would have killed me. This makes it a lot more palatable.

D'Ecosse. Thanks again for your assitance. I did see the sites you referred me to, and I actually took my original quote from one of those pages. I will reconfirm what the RUT-50 form says with the Illinois Department of Revenue on Monday.

Thanks again guys.

Regards.

 

[nsxtasy]

Hi,

There are taxes associated with the purchase transaction, and ongoing taxes associated with the ownership of an automobile. I assume that you are familiar with the latter - our relatively-low state registration fee and, in some municipalities, the city registration ("city sticker") fee, and you are asking about the taxes on the purchase transaction itself.

In most states, the taxes on the transaction are imposed only by the state of the buyer, by the state of the seller. That means you will be paying tax on the transaction in Illinois.

I have provided a complete answer specific to Illinois, including exactly how much tax you will pay, where to get more information about it, why it isn't on the Secretary of State website, how to go about completing the forms, etc etc etc, in your post on the Midwest forum here.

 

[nsxtasy]

Originally posted by NSXaholic:
I didn't know that the RUT-50 form was available online, and that the amounts are clearly stated (why are there two columns??).

The form is not available on-line. This is a multi-part form using NCR (no carbon required) copies, so you cannot download a blank form like you can with some other tax forms.

I suspect there are two columns because they made a typographical error, and one column of tables was supposed to be for 2002 and the other for 2003.

Originally posted by NSXaholic:
I will reconfirm what the RUT-50 form says with the Illinois Department of Revenue on Monday.

As I noted in my post in the other topic, there is no need to deal with the Illinois Department of Revenue at all. You can do everything you need through the nearest facility of the Secretary of State's office that handles plates and titles. See the link in my other post to find your nearest office, including their telephone number (although they're just going to confirm what you're already reading here).

 

[nsxtasy]

Originally posted by D'Ecosse:
Most states charge sales tax on vehicles, regardless of where you purchased it. Is that a rip-off? That's government for you!

Why do you say that it's a rip-off? If you live in a state that does charge sales tax, you pay sales tax, but usually only to your home state, and you pay the same amount of sales tax regardless of whether you buy it in-state or out-of-state, and regardless of whether the state you're buying from has a higher or lower sales tax rate than yours. For example, if you live in Illinois, you pay Illinois tax rates - which means sales tax for purchases from an individual of no more than $1500, and then of course you pay the basic annual registration fee of $78 per year. Heck, if you live in a state that doesn't charge any sales tax (e.g. Oregon), then you don't have to pay sales tax on the purchase. It all seems fair to me.

 

[nsxtasy]

Originally posted by D'Ecosse:
That's government for you!

Speaking of which...

Many government agencies seem to be pretty good at developing external websites with information for the public. For example, the ability to download tax forms and publications is a godsend, not only to accountants, but also to anyone who does his own taxes. (Yeah, yeah, I know they're just making it easy for you to give them money, but still, it's a real convenience and a great use of technology.)

The Illinois websites are a bit confusing only because two different departments are involved when purchasing vehicles, but you can find the information you need fairly easily if you know where to poke around.

So why is it so darn difficult to find the answer to a very basic question on the California DMV website? Specifically, let's say I were moving to California (I'm not, but let's say I were) and I wanted to know how much a year it costs to register a car there. There's a web page called "Fees" but I'll be damned if I can find anything that shows amounts - it only mentions that they charge six different fees (Registration Fee, License Fee, Weight Fee, Special Plate Fee, County/District Fees, Owner Responsibility Fee) but nothing tells how much the fees are. I couldn't find any publication that gives tables or anything. Is there someplace on the website that I couldn't find, that tells this? Or do they not provide such basic information? What's up with this?

------------------------------------

P.S. Sorry for the multiple posts, but each one was responding to a different post about a different aspect of the topic.

[This message has been edited by nsxtasy (edited 01 December 2002).]

 

[D'Ecosse]

Originally posted by nsxtasy:
Why do you say that it's a rip-off? .

I don't believe I said it was a rip-off, I asked "Is that a rip-off?"

If you buy almost any other commodity from an individual anywhere in the country (local or otherwise)you don't pay any tax on that purchase.
If you buy almost any other commodity from either a business or an individual from outside of your home state, you don't pay tax on that purchase.
But in the case of auto, you are being taxed on your purchase - not on the sale of something from your own state.
You are being asked to pay tax for something which has already been subject to tax from its previous (perhaps multiple) sales transactions, which you are buying with your hard-earned money which has already been taxed.
But you have no problems with this?
Apparently you don't ...

Originally posted by nsxtasy:
It all seems fair to me

 

[D'Ecosse]

Originally posted by D'Ecosse:
If you buy almost any other commodity from either a business or an individual from outside of your home state, you don't pay tax on that purchase.

Actually, I must correct myself - while researching the answer to the second question (or at least where you could find it on-line) I discovered that CA expects its good citizens to volunteer information & payment of tax on all purchases made (that would typically be taxed in CA) regardless of where you bought it (internet, etc.)
I'm sure they are quite overwhelmed with the sheer volume of these forms & checks!
http://www.boe.ca.gov/pdf/pub79b.pdf

 

[nsxtasy]

Originally posted by D'Ecosse:
If you buy almost any other commodity from an individual anywhere in the country (local or otherwise)you don't pay any tax on that purchase.

That's not true; it depends on the purchase. For most items of substantial value - cars, boats, homes - you do indeed pay tax on the purchase transaction. For items of nominal value - if you buy a t-shirt for $10 (or an exhaust for $500) on eBay - you don't. I think this is more related to the size of the purchase and the amount of bother in collecting the tax, than anything else. Technically, you may very well be liable for the tax... but as a practical matter, you don't bother. Think of it this way: if you bought the t-shirt for $8 and sold it on eBay for $10, legally speaking, you owe the IRS (and possibly your state) a tax on the profit, and (possibly) your state the sales tax on the receipts. But most people don't bother filling out tax forms for a $2 profit or a $10 sale (and, legally, there is often a limit below which you are not obligated to fill out forms or pay taxes). Sell 10,000 of those t-shirts, though, and yes, you will certainly be expected to pay tax on them, even if you are an individual selling them to other individuals. That means income tax on the profit, and sales tax on the sales (certainly on in-state sales, at any rate; see below regarding out-of-state sales). Whether you are an individual or a business, you owe the tax. Now, any individual OR business is free to not collect sales tax from its buyers/customers - but it will still be obligated to pay sales tax to the government.

So, bottom line here, is that the sales tax is still due - but only when large amounts are involved, for legal as well as practical reasons. And it may be due from (and paid by) the seller even though the buyer may not be charged the tax by the seller.

EDIT: I see from your second response, which you typed while I was typing this up, that you found out that this is technically indeed the case per California law.

Originally posted by D'Ecosse:
If you buy almost any other commodity from either a business or an individual from outside of your home state, you don't pay tax on that purchase.

That's not exactly true, either. If you buy such a commodity from a business which has a retail presence in your state, you DO pay your state's sales tax on that purchase. Buy from a "bricks and clicks" retailer like bn.com (Barnes & Noble), homedepot.com, etc and you will see that they indeed charge you sales tax, even if they are shipping the item from out of state.

I am not sure what the legalities are regarding interstate purchases from businesses (and individuals - other than the size of the transaction as noted above, I doubt there is any distinction in treatment). I have heard lawyers say that businesses are technically obligated to pay sales taxes - there may be another term for them - on such interstate purchases, but as a practical matter, they don't collect them and the states rarely go after them. I am not a lawyer but I'm sure the legal professionals among our members can fill in the details.

Originally posted by D'Ecosse:
You are being asked to pay tax for something which has already been subject to tax from its previous (perhaps multiple) sales transactions, which you are buying with your hard-earned money which has already been taxed.

That is the system in the United States. When something is sold at retail, sales tax is due to the government. When it is re-sold, sales tax is again due.

Many other countries have a system called "value added tax" (VAT), in which VAT is assessed at each step in the distribution process, but only on the increase in value. When an automaker buys steel, it pays VAT on the steel. When the dealer buys a car from the automaker, it pays VAT on the difference in price between the wholesale car and the steel that went into it (the "value added"). When the consumer buys the car from the dealer, he pays VAT on the markup on the car (again, the "value added"). At least, that's my understanding of the way the value added tax usually works. Again, any NSXprime members (particularly those from outside the U.S.) who are familiar with those systems, feel free to jump in. But that's a system that governments elsewhere use, not in the United States.

Originally posted by D'Ecosse:
But you have no problems with this?
Apparently you don't ...

Uh... no, I don't. That's just the system. Those are the rules. I know there are people who think all taxes are wrong, the larger the "wronger", and some even think they are entitled to any way they can avoid them - legal or otherwise. I don't spend my time agonizing over our tax system - "having problems", if you will. That's the system of laws in our country. If you don't like some aspect of our legal system, there are ways to change it - write to your legislators, run for office, move to another jurisdiction - whatever floats your boat. But before you claim that things are unfair, make sure you understand the system we have, because it may be that many of the assumptions you were making about how it works turn out to be wrong.

Incidentally, one of the more interesting articles I've seen about U.S. taxation is here, entitled "Are U.S. taxes low compared to the rest of the industrialized world?". It is primarily about federal income and payroll taxes, but it also touches on overall government expenditures (at all levels) as a percentage of GDP (gross domestic product). Of course, just because our taxes may be low compared to other countries, doesn't mean that they're too low (and the article does talk about the level of services that the taxes pay for). But it's interesting to get a perspective on how the United States compares with other places. And keep in mind that this was written before the recent tax cut legislation was passed (and before the government surplus became a deficit again).

[This message has been edited by nsxtasy (edited 01 December 2002).]