happytang

Alright guys, I'm going to need your help on this one, the more details and more help you can provide the better.

I'm currently in the process of buying a car from a private seller. He has to decided to sell the car instead of trading it in. However he currently in the process of buying out the lease.

Here is my question. I guess the total buyout price was $18,500. He leased out a new Acura TL and one of the incentives to get a newer one was that the dealer would pay 3500 off of his older buyout regardless. So he ended up taking the deal. His choice was then to sell it privately, though he obviously still has to buy out the car. That would make the current buyout at 15000.

So here's my question, apparently on his payments, they were already charging him sales tax for the car, which is kind of weird. So just keep that in mind. Anyway, the process in which I would buy the car from him would be to pay off the buyout, transfer the title, and then give him the difference for what he was asking for for the car. So he's pretty much looking to just get like a grand or 2 off of the sale.

However, since it's a lease buyout, apparently at the title transfer (from the dealer to my name) I guess I would still have to pay sales tax on the car. Simply put, I don't want to pay the extra 1200 in sales tax.

The part I have not been able to figure out is that while the total buyout price of the car was 18500, sales tax would be applied to the buyout price after the 3500 credit from the dealer, thus 7.75% x 15000.

So if I gave him a check for $5000, does that mean that sales tax would only be applied towards $10000?

How the hell do they figure out sales tax on lease buyouts? If he had already paid off $13000 on a $18500 car, and decided to sell it then, would I only have to pay tax on $5500, the price of what is left on the buyout?

He's one of my parents co-workers, so he doesn't mind helping us out. Originally, the plan was to just put an extremely low price on the bill of sale. Now that we're dealing with a lease buyout, that option is out of the question.

TzarChasm

Depends on where your at, different states do it differently. In MA they figure out tax based on the Sale price or the blue book price, whichever is higher. The Buyer ALWAYS pays the sales tax here. If you buy from a private sale, they charge you when you go to register the car.

happytang

Well I guess my post is a little confusing for how easy the question is. Let me rephrase it all.

The seller has decided to purchase his car at the end of the lease instead of returning it. However, the dealer has already paid off 3500 of the 18500 purchase price. We found out that the sales tax that I would be paying for some reason however would not be for the purchase price of 18500 but the 15000 after the 3500 is applied. What the hell?

Does that mean if I give the seller say a check for $5000 to make the buyout price $10000 does that then mean that I would be paying sales tax on $10000?

happytang

Hell yea,

Bump since I need to have this answered ASAP.

Batman needs you.

thrlride

I will describe how it went down for me yesterday. I bought a tl and took the title to the DMV as well as proof of insurance. They have a table that dictates what the car is worth and then I paid 3% of that.

TzarChasm

I really think you need to post which state/country you are in because different states and certainly countries do it differently. You will get your best help from soneone who knows about your state/country.

IntegraVT

iTrader: (1)

Every state is different, but as I see it, there are two taxable events here. Sale from lessor to lessee, then a subsequent sale from lessee to you. Your state's department of taxation will be very pleased.

What thrlride mentioned also applies to NJ, regardless of the sale price with certain exceptions* your DMV will assess the vehicle's market value and collect sales tax based on that.

* - http://www.state.nj.us/mvc/Vehicle/VehiclesExempt.htm

happytang

Orange County, California.

jimsta

iTrader: (1)

Alright, I actually went through this because I was trying to buy my friend's lease out. I can tell you right now, that you will probably end up paying double taxes.

If he financed through American Honda, they will NOT title the car to anyone ELSE except the leasee of the vehicle. So if John Doe leased the car and then chooses to buy it out, American Honda will charge him sales tax and the title will be put in his name. Sales Tax is charged on what it costs to buy out the car. If John Doe owes $16,000 on the car, he will pay tax on the $16,000.

If John Doe sells to you, then you will end up paying sales tax on the car since it will be a change of title from John Doe to you just as IntegraVT noted. John Doe pays tax and then you pay tax when he sells to you.

You can try and get away by marking down a really low price for the sale when he titles to you. but if you try to put down like 5k for a 2004+ TL... they will probably laugh in your face or ask for some notarized bill of sale type deal.

indoMFP

hold.. let me break this down...

indoMFP

okay, please clarify or confirm....
-----------------------------------------------------------------------------
1. Please give us the model year of the vehicle.
2. Here is the issue (from the info above):
- $18,500 Residual Value of Lease on a Acura TL
- $3,500 buyout from the Lessee (Dealer) to the lessor (You Mom's coworker)
- He will buy back the vehicle for $15,000
- You will buy the vehicle for the residual value (not Real/Book Value)
- The sale of the vehicle to from the Lessee to Lessor is one transaction (you are not liable for any sales tax on this transaction)
- The sale of the vehicle to you is another transaction (independent of the above), as such you will pay taxes on the sale price of the vehicle only.
Note: KBB says that an excellent condition 2004 TL is worth ~$20k in your zip. A poor one is worth ~$18k. These are private party sales, similar to one that you will be entering into.
- You paying the sales tax on the $15k is more beneficial to you than paying on the $18k.

I don't know if I answered the question or not, but to recap... DO NOT combine the transactions. The transaction that requires the purchase of the vehicle is between the originals parties to the transaction (Dealer and Co-worker friend). You are buying the car for $15k and you will pay tax on that (even though the car is worth more).

However......
What I think he (co-worker friend) wants to do is the following:
- Buy the car for $15,000 from Dealer (he will be responsible for paying taxes $1,087.50 - assuming 7.25% in Orange County).
- Turn around and sell you the car for $18,500 to you, but state on the Bill of sale that you are paying $15,000, thus making $3,500 gross profit on the deal. He will get his taxes paid back thus making only $2,412.50 net profit on the deal.
Am I right in the above???? This is still a good deal if you know what the car is worth and also how the car was maintained.

happytang

Well to clarify, we called the financial service and here is what they stated over the phone.

They would agree to allow me to pay for the actual buyout, and then the title would then be sent to me, where I would have to go to the DMV and do the title transfer from them to me. They stated that the purchase price in which I would be charged tax for would be 15000.

This is for an Acura TL 2004 with Nav.

My main question lies in the fact in which the dealer paid off 3500 of the initial purchase price. Since the original buyout price was 18500, how is it possible that I would only be charged sales tax for the price after the dealer's payout?

This brings me to believe that if I gave him an extra 5000 towards the total buyout making it 10000, apparently according to the way it's worked out so far, I'd then be paying taxes on the buyout price of the 10000 then owed.

The plan is that I basically take over the buyout from him. This is what the financial company said also. They would be sending me the title, and not him.

ndabunka

What you are doing is fairly common in that the dealer is "passing through" a sale to get their newer sale. The dealership gave him $3,500 towards the new car (i.e. this can either be listed as a discount on the new car or a creidt for the value of the old car). However, the amount of your down payment does NOT affect the taxes you have to pay. You could still put more down but it won't affect the taxes you have to pay. In short, you will still have to pay taxes on the value of the buyout ($15K in this case) no matter HOW much you put down or even if you paid $15K cash for the car.

happytang

Ok. Well I'd have to say that answers my question generally. At least now I know there really isn't a way to lower the sales tax.

Any idea why the 3500 lowers the purchase price of the car while another payment would not?

Xs05TL

Basically, because the dealer's 3500 reduces the actual official transaction cost from 18500 to 15000, while your 5000 only splits a single 15000 transaction into 2 steps -- a down payment and a payoff. AFAIK, vehicle trade-ins are treated the same way -- they reduce the transaction price on which sales tax is applied.