Cross State Sales Tax Issues - Defender Source
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Old July 28th, 2017, 12:36 AM
capncooke
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Tom Cooke
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Question Cross State Sales Tax Issues

Hi guys,

I'm in the process of purchasing a 1997 NAS D90 (#950) from a great guy and member of the forum here.

Truck is in RI and I'm in CA, we're doing all of our due diligence now and getting ready to complete the transaction and ship it out.

I dug around and only found one or two articles on this issue and they weren't super helpful.
Here's are my questions:

How exactly does the sales tax work?
I assume I would pay CA sales tax based on the purchase price on the invoice or bill of sale from Rhode Island when I register the truck. Or pay sales tax in Rhode Island and prove to CA DMV that I'm exempt based upon already having paid taxes.

One of the articles titled "State Tax Sucks" mentioned that some people put a much lower price on the bill of sale or invoice to soften the tax blow when registering the truck. Seems a bit risky and most likely illegal but was something that my seller threw out there as an option to help me save some duckets.

Has anyone else been in this situation? Just looking for some advice.
Don't want to do anything super shady and would obviously like to avoid doing anything outright illegal. But I'm sure folks take that risk and have done this type of thing. I plan to ask my CPA about this issue as well, he'll probably have some good advice for me.

Let me know if anyone has any experience with this exact situation or similar.
Rest of the transaction is going very smooth.

I fly out next weekend to inspect and drive the truck before we ship her out. Having a mechanic perform an inspection to verify restoration work and overall mechanics. Still figuring out how to handle the money transfer but will likely go with PaySafeEscrow.com to protect us both. That leads to another interesting issue since this web site and service was recommended by the DMV and creates a very tidy paper trail and proof of actual purchase price...so if I use them looks like I am paying full taxes doh!

Scott the seller has been just an amazing guy to deal with. He runs a tight little shop called Higher Ground Rovers out of RI. Have enjoyed dealing with him.

Scott if you happen to read this you're an A Game professional and I'd highly recommend you to guys like me. Basically I'm time poor but had the cash to buy a nice restored NAS D90.

Thanks in advance for any help on these tax questions.

Tom
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  #2  
Old July 28th, 2017, 01:08 AM
Naplm00
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You pay California tax based on where you live. Don't pay tax in RI.

You will pay when you register/title it
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Old July 28th, 2017, 01:24 AM
capncooke
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Tom Cooke
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Thanks Matthew.

That was my understanding, appreciate the confirmation.
If anyone else has anything to add I'm all ears.

Tom
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  #4  
Old July 28th, 2017, 01:33 AM
jperakis
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I've heard of people putting a lower price on the bill of sale to avoid registration fees
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Old July 28th, 2017, 02:23 AM
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I used to put a lower sale amount on the bill of sale when I was back east. Here in Nevada they base it on a super secrete special book or computer algorithm.... KBB or MSRP minus depreciation ... It can't hurt for a cash sale or maybe two wire transfers... one at the bill of sale price and the balance as a bonus to the seller...
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Old July 28th, 2017, 05:54 AM
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If you were buying from a dealer and taking possession in their state they'd be obligated to collect sales tax, then CA would give you credit for what you paid if you can prove to their satisfaction. In your case the seller isn't allowed to collect RI sales tax so you'll pay in the state that you register. Technically it's a state Use tax because the seller didn't collect the tax at the point of sale. Very nerdy.
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Old July 28th, 2017, 06:44 AM
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I would look in the NADA guide to see what the book is on it. If it is way lower than what you paid (quite likely) then you can put that value on the BOS/Title for your Cali sales tax purposes. Don't put something silly like you paid $1000 for it, cz they aren't that stupid that they won't catch that. However, you'll probably be OK with low book minus a couple. That probably won't raise any eyebrows. Here in MD, sales tax is $60 per thousand...so it adds up pretty quickly!

Here's the link. Ugh:
http://www.nadaguides.com/Classic-Ca...gon-4x4/Values
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  #8  
Old July 28th, 2017, 08:24 AM
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This is why you read articles like Sales Tax Sucks. Having purchased vehicles from and into well over a dozen states, I'll provide some observations:

1. Generally, you pay tax in the state where you take delivery. In your case, California.

2. Most states charge a percentage of the sales price, typically 5 or 6% or what ever their state sales tax rate is for purchases. Some charge a lower transfer fee, but that is the exception, not the norm.

3. Many states also charge a penalty, usually a smaller additional percentage, if you do not transfer title within a short period (10-30 days) of the date of purchase. This has always been a big issue for me as I usually purchase vehicles that require some work prior to being truly road worthy. Texas makes this worse as you have to have the vehicle inspected before title and tags (there is a way around this issue).

4. The irony of sales tax is that if I purchase a pre-restored vehicle in one state, have it shipped to another for restoration, and then import it into my state for title, I will only pay tax on the purchase price, not the purchase plus restoration price. Many people use this logic to only declare the pre-restoration price when they apply for title and pay any tax due in their state.

5. Declaring less than the true purchase price for purpose of avoiding sales/transfer tax is blatantly illegal in every state where I have experience. Purchasing a pre-restored vehicle and receiving title, then paying separately for restoration, and declaring the true pre-restoration sales price is a bit gray, but meets the definition of sales price in every state where I have experience.

Frankly, CA can be a bit militant and if you follow the law you owe sales tax on what ever the seller declares the sales price to be.
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  #9  
Old July 28th, 2017, 09:36 AM
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Quote:
Originally Posted by Factoid View Post
This is why you read articles like Sales Tax Sucks. Having purchased vehicles from and into well over a dozen states, I'll provide some observations:

1. Generally, you pay tax in the state where you take delivery. In your case, California.

2. Most states charge a percentage of the sales price, typically 5 or 6% or what ever their state sales tax rate is for purchases. Some charge a lower transfer fee, but that is the exception, not the norm.

3. Many states also charge a penalty, usually a smaller additional percentage, if you do not transfer title within a short period (10-30 days) of the date of purchase. This has always been a big issue for me as I usually purchase vehicles that require some work prior to being truly road worthy. Texas makes this worse as you have to have the vehicle inspected before title and tags (there is a way around this issue).

4. The irony of sales tax is that if I purchase a pre-restored vehicle in one state, have it shipped to another for restoration, and then import it into my state for title, I will only pay tax on the purchase price, not the purchase plus restoration price. Many people use this logic to only declare the pre-restoration price when they apply for title and pay any tax due in their state.

5. Declaring less than the true purchase price for purpose of avoiding sales/transfer tax is blatantly illegal in every state where I have experience. Purchasing a pre-restored vehicle and receiving title, then paying separately for restoration, and declaring the true pre-restoration sales price is a bit gray, but meets the definition of sales price in every state where I have experience.

Frankly, CA can be a bit militant and if you follow the law you owe sales tax on what ever the seller declares the sales price to be.
Nothing wrong or gray about only paying sales tax on pre-restoration purchase price. This is because the parts purchased during resto will be subject to sales/use tax (if the state has a sales tax) and services/labor are not typically subject to sales tax. This is where is gets nerdy; technically if the state you live in has a higher tax rate than the resto shop you are supposed to pay the difference to your state.
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  #10  
Old July 28th, 2017, 09:45 AM
DiscoDavis
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California will make you pay sales tax if purchase was within 1 year of when you go to register with the DMV here. If you paid RI tax, then waited 1 year, you can register in CA without paying the tax. IF you paid the RI tax and brought it here to be registered within that 1st year, you can bring the receipt/proof of payment with you and the state (CA) will offer a credit in the amount of what you already paid, and you just pay them the difference.

Unfortunately CA tax is almost always way higher. When I moved from Virginia back here the tax I paid on one of the cars (bought less than 1 year ago in VA) was more than double...
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Old July 28th, 2017, 10:52 AM
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Tom Cooke
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Thanks to everyone who replied and offered advice here.
Extremely helpful.

Pretty similar to the conclusions I had come to but nice to know many of you have been through this situation. Always good to confirm.

I think we can all agree that tax does in fact suck!



Tom
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  #12  
Old July 28th, 2017, 11:49 AM
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Quote:
Originally Posted by jperakis View Post
I've heard of people putting a lower price on the bill of sale to avoid registration fees
Mass designates minimum value for sales tax purposes.
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  #13  
Old July 28th, 2017, 04:19 PM
capncooke
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Tom Cooke
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Hey all,

So just to close the loop on this thread from my perspective...

Here's where I landed on the interstate use tax topic.
I'm going to do the right thing and just straight up pay the full tax amount.
The invoice will state the actual agreed upon sales price.

The savings of a couple thousand dollars to me just isn't worth the risk.
I'm not judging anyone who has decided to go the other way. It's an individual decision and risk assessment.

In this case, my personal integrity is what matters to me.

Again appreciate all the advice!

Thx

Tom
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