By on March 29, 2011

I hate politics. Neither side of the extremes can do math and everyone in between ends up paying for it all. I don’t care if you’re a Rep, Dem, Lib, Con, Tea, or the apathetic majority. Putting faith in political solutions when it comes to money is never worth the effort. With that said, my home state of Georgia is money crunched. They see an asset worthy of their financial portfolio and yes, it is the automobile.

Georgia and New Hampshire are the only two states that don’t collect a tax for ‘individual to individual’ transactions. You buy a Camry for ten grand in Atlanta from a fellow down the street? That’s all you pay for now. Get one from the dealer down the street? It’s more. An extra $600 to $800 (6% to 8%) depending on your county’s sales tax rate. Does that put the dealer at a disadvantage? Yes, but that’s not close to the whole story.

The big issue for most dealers is not the one time ‘individual to individual’ transaction. But the ‘curbstoner’. When you drive down the road and see the same corner spots hawking vehicles for sale, that’s curbstoning. Individuals who buy vehicles at public auctions or privately and then try to find whatever well traveled space is available to sell it on the cheap.

Officially you are supposed to sell no more than five vehicles a year as an individual in Georgia before you have to get a dealer’s license. Most states have the same policy, and it’s never cheap. The running cost of a dealer’s license in Georgia when you throw in an office, insurance, a surety bond, and other associated costs is usually at least ten grand. That’s serious money for most folks and not too surprisingly, most small-timer’s want to avoid it. However when ten cars turns to twenty, which turns to fifty… the laws of unintended consequences tend to go haywire. You end up with a cottage industry where cars by the thousands every week are sold this way tax free.

The car that blew up down the road gets bought on the cheap, minimally fixed up, and re-sold on the same side of the road. Used tire stores buy wrecks that are then fixed up with minimal safety standards and get ‘for sale’ signs on their windshields. All of it is under the table. Before you think I’m exaggerating here, I have both versions of this within five miles of my dealership. As the guy who is stuck paying for the ‘free riders’ and dealing with the rep these folks give to my work, it ticks me off.

So now we have another “Major Tax Reform Bill” at our state’s Capitol. It is House Bill 387 and it will raise about $300 million in taxes if it’s passed. A flat sales tax that would level out the playing field when it comes to purchasing a vehicle and it will help close yet another record deficit . But many of the folks in Georgia who buy their vehicles privately will end up paying more. Is it fair?

I don’t know. I realize that this automotive version of a fair tax capitalizes on John Q. Public. But I also know that you can’t have all the benefits of a stable democratic government without paying for the cost of it. Right now we’re about $13 trillion plus from that reality. To me the ‘income’ side of taxation is always up for debate. The ‘goods and services’ side? Not so much. I think a fair and flat tax on that end is reasonable. I think it should pass.

Does supporting this bill make me the bad guy? Obviously I am the ‘special interest’ in this case. But am I right? And if I’m not right… who else is wrong?

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58 Comments on “Hammer Time: The Next Flat Tax...”


  • avatar
    Verbal

    Taxes collected on I-to-I sales are based solely on the sales price shown on the hand-written bill of sale.  So most people will write it up at a lower than sales price (but not ridiculously low to arouse suspicion) to minimize the sales tax on the transaction.  There is always a way to beat the system.

    • 0 avatar
      slavuta

      In PA you can write anything you want. If this is not good enough they pull the book on you and you pay the tax by the book value. Unless it is 10 years old, this is when you have to sign the paper that you really selling for the price you selling it.
      I generally think, taxing anything twice is wrong but if you tax the dealer only then yes – tax any car sale.

    • 0 avatar
      Dr. Kenneth Noisewater

      In DE they extract a fee at the DMV based on the blue book value of the vehicle when you register it for the first time, so there’s no escaping the taxman..  IIRC it’s 4%.

    • 0 avatar
      Scoutdude

      In WA they charge sales tax on I to I sales based on an inflated book value for a car in perfect condition that is higher than the asking price would be a most dealerships. Yes you can discount from that price if the car needs “major mechanical” or paint and body work IF you provide a written estimate. However it needing new tires, it is over due for it’s high dollar xxK mile service that is considered maintenance so it doesn’t count. So when I purchased my last car that needed it’s 100K tuneup and $1000 worth of tires the wanted to charge sales tax on near $12k for a car I paid $7k for. The will take another source of the retail price. So the lady at the office told me to go to the various pricing web sites, and then I got an estimate to repaint the majority of the car to fix the normal light scratches to get what it down  to less than what I payed. But hold on then they charged me based on the price I actually paid for it because that was now the higher price. A big huge PITA but worth the $450 it saved me.

      Buy from a dealer and you pay based on the actual transaction price if it is an outright purchase. However if you have a trade in you only pay sales tax on the difference of your trade and the new purchase if you buy at the dealer. Buy from a private party and sell your car yourself and the state ends up getting lots of extra tax $$$. So private party sales are much more profitable to the state since they are double dipping and overcharging on those sales.

    • 0 avatar
      wsn

      “There is always a way to beat the system.”

      The system is at fault if it’s easily beaten.
      Simply remove the sales tax and add that cost into fuel or insurance.

    • 0 avatar

      In Texas it’s the same as most states, I guess. The higher of the stated price or the book value as determined by the State controls. That’s a huge loophole in state taxation of vehicles you’ve described, IMO.

  • avatar
    Acubra

    When you have a leaking pail. you seal the hole(s), rather than pour more water in it.

    Same here. If govt bleeds red ink, then audit hell out of their spendings and make the officials legally and financially liable for any misspendings/theft.
    Because you’ll never collect enough to satisfy their gluttony.
    But sorry. I was daydreaming…  

    • 0 avatar
      Xeranar

      Define gluttony you absent-minded simpleton?  I get disgusted with these arguments about how the government is vastly overspending on X and Y when we need every service and then some.  Without the social safety net our country would be in far worse shape than it stands today.  We need to face a reality where poor countries are taking advantage of our free trade policies while our own corporations run us dry and idiots declare it’s the government’s fault for all of this.
       
      If we simply elected people capable of turning the tide of free trade we would be better off but that would mean electing socialists and other left-leaning people.  Something the average reader of this blog is incapable of doing.

    • 0 avatar
      wsn

      Xeranar: “I get disgusted with these arguments about how the government is vastly overspending on X and Y when we need every service and then some.”

      I don’t consider the Iraqi war to be a service we need.
      No, no WMD was found.
      And yes, Obama promised to end the war ASAP before getting elected. If that’s any indication of his work efficiency, …

  • avatar
    Russycle

    ” But many of the folks in Georgia who buy their vehicles privately will end up paying more. Is it fair?”
     
    I think you’re phrasing that wrong.  How about: “So many of the folk who buy privately will pay the same as those who buy from licensed dealers.  Is that fair?”
     
    Sounds fair to me.

    • 0 avatar
      Toad

      Here in North Carolina you pay sales tax on private party sales on the full book value of the vehicle, but if you trade your car in to a dealer you only pay tax on the difference between the trade in and purchased vehicle.
       
      In other words, if you buy a $15,000 car from a dealer and have a $10,000 trade in, you only pay tax on the $5000 balance.  If you buy a $15,000 car from your neighbor (and sell your old car on your own) you pay tax on the whole $15,000.  Nice racket for the dealers.
       
      Of course, you still get to pay property tax on the vehicle every year.
       
      The car dealers in NC definitely get their moneys worth from their lobbyists.

    • 0 avatar
      chuckR

      well, toad, if you move to RI, you’ll be completely familiar with the procedures – exact duplicate

    • 0 avatar
      vbofw

      North Carolina charges annual property tax on vehicles?  MY goodness.

    • 0 avatar
      nonce

      Most states charge property taxes on cars. Depending on how it’s calculated, you may or may not be able to deduct it against your Federal taxes. The IRS has a list.

    • 0 avatar
      bikegoesbaa

      Technically it’s a “highway use tax” rather than a property tax.
       
      But yes, 3% of the made-up value of the vehicle every year.  Fortunately, they seem to be really low on their made-up values for motorcycles.

    • 0 avatar
      Omnifan

      It’s not called a highway property tax, but an “ad valorem” tax that you can deduct on your state income tax.

    • 0 avatar
      Toad

      Yup, lucky us.  We pay annual property tax (not highway use tax, property tax; I’m looking at the bill) on all vehicles, plus boats, RV’s, trailers, etc.  If it is registered, it is taxed.  Plus some municipalities add a “vehicle fee” over and above the property tax.

  • avatar
    zeus01

    Only problem is that once the flat tax is introduced the bean counters will then start cracking down on low-balled bills of sale by introducing a flat tax rate based not on purchase price but on book value of the car. It will then be up to the individual to prove to the department of motor vehicles why his or her car is worth less than “book value” and therefore should be taxed accordingly. Most folks won’t bother though, because the time, effort, fees and red tape will not be worth the effort— exactly as planned by the state!

  • avatar
    Educator(of teachers)Dan

    Wow, I’m very lucky that although my father did sell me my first two cars (they were his before they were mine) he put down “GIFT” on the title when it came time to go the MVD and make the transfer.

  • avatar
    cdotson

    I don’t know how it’s written, but it should be set up to be handled by the DMV when a vehicle is registered for the first time to prevent adding the burden of collecting/filing sales taxes onto the curbstoners who will most assuredly abuse the process.  Plus this relieves established dealers from having to do this themselves, when they can handle it via DMV paperwork they probably already do for the customers.
     
    Of course, the GA DMV, like almost all of them, has its downfalls.  When I lived there (Columbia Co), they charged EXTRA to use online services.  Moving to VA brought back the reality that they charge extra here to have to stare at someone at the counter if you could have done it online.

  • avatar
    spatula6554

    What has always bothered me is how a state government will collect tax on a vehicle multiple times…sold as new, then sold as used, used, used, used and then who knows where.  They get you coming and going…

  • avatar
    mazder3

    Sales Taxes? What are these sales taxes you speak of? I am sooooo spoiled by New Hampshire. One less headache we have to deal with.

    • 0 avatar

      +1, as an Oregonian.

    • 0 avatar
      Educator(of teachers)Dan

      Doesn’t Oregon charge outrageous fees for license plates and licenses to make up for that lack of sales tax?

    • 0 avatar
      Russycle

      Dan, that would be Washington.  They have sales tax, but no income tax.  I know there was recently a measure to reduce their substantial licensing fees, don’t recall if it passed.  Oregon registration fees are low, but don’t get me started on our income tax….

    • 0 avatar
      FuzzyPlushroom

      Exactly. I’ve bought two cars, both private-sale, and paid no taxes – I guess it never occurred to me that private auto sales between consenting individuals were any business of the state. That said, on the opposite end of the spectrum, my partner bought a used Civic a couple of years ago, then moved down to Massachusetts a few months later – and because he’d purchased the car within six months of the move, The Great Wealth Extraction Commission ensured that he paid Massachusetts sales tax on his New-Hampshire-plated, New-Hampshire-purchased Honda when he got new plates down there…

    • 0 avatar
      Scoutdude

      In OR your tabs are good for 2 years and the are really cheap the last time I checked. In WA we used to have really high licesnse fees based on their value but Tim Iyman (sp?) ( the guy pictured on the red light camera story on the right) got his initiative passed that made it a flat fee. Of course there was a loophole that allowed local gov’t to add their own taxes for some things like the Rapid Transit tax in some but not all parts of King county.

    • 0 avatar

      The majority of state taxes are financed from sales tax, income tax, and property taxes.  In Texas, we have 2 out of 3, and so our sales and property taxes are very high compared to others.  No income tax.  We don’t have any problems raising junk fees and penalties and not calling them “tax increases,” though.

  • avatar
    Sinistermisterman

    Up here in British Columbia that it is already the case that you have to pay tax for buying a used car from the guy down the street (slightly less than at a dealer), but as already mentioned here, a few hundred dollars are usually shaved off the paper price or the car is ‘gifted’.
    Personally I have serious beef with paying tax for a used car whether it comes from a private seller or a dealer. The government got their money once when the car was new (12% here in BC) – why they hell should they be allowed to collect again and again?
    I don’t know what the statistics are for how many times the average car is bought and sold before it ends up at the junk heap, but theoretically if a car is bought and sold 3 times in its life through a dealer (not unheard of) and cost $20k new then the government get $2400, then say the car is sold a few years later for $10k, the government gets another $1200, and finally it is sold on a few years after that for $5k, the government gets $600. So in theory the government will eventually collect $4200 on a car that was originally worth $20K? Is that fair? I don’t think so.

    • 0 avatar

      It doesn’t bother me so much that the government keep on making money, what bothers me is that I take an instant depreciation hit whenever I buy a car. My neighbor is trying to sell his car for $20k, if I bought it and didn’t like it after a week of driving I’d be almost $2k in the hole even if I got my $20k back selling it on. The sales tax should be baked into the license tax so is collected based on use rather than number of times sold.

  • avatar
    JMII

    I’m waiting for the consignment shop based used car lot to come out. You drop off your car and let the management of the lot handle the transaction. You don’t sell the car to the lot, its still your car the lot sitters are selling it for you as a service. There are some corners of town where each week a new batch of used rides appear. However currently the cops just write tickets for the illegally parked cars. Seems like a business opportunity to me. Buy the lot and rent out space to people trying to sell their car.

    • 0 avatar
      Steven Lang

      Already widely done and already widely unsuccessful.
      The sellers usually have unrealistic expectations of what the vehicle should sell for and then have to add the ‘dealer’ service fee on top of that.
      On the other hand the ‘car’ flea market or swap meet is an international phenomena and that is very successful. Especially in the former Soviet states. A portion of the latino population in metro-Atlanta actually does that.

    • 0 avatar
      Philip Lane

      I’m not sure why you’re still waiting. Consignment used car lots have been around for years.

    • 0 avatar
      JMII

      Guess I’m out of the loop then, but I just see so many cars sitting on the side of the road for sale and the popular spots have a constantly changing inventory… its kind of entertaining. For example this week’s collection at the Sample Road Turnpike entrance has two nice looking Mercs (black and white choices), last week there was a faded brown Pinto and a clean black Civic. I almost stopped to take some pictures as I couldn’t believe someone was actually trying to sell a Pinto road-side.

  • avatar
    dkleinh

    Yep, I sold a car at: http://www.buggybank.com in Berkeley, CA.  Worked pretty well.  While you can choose to
    set your asking price as you wish, they steer you towards a book price and the longer your car sits on their
    lot, the higher their charge will be.  I thought it was reasonable.

  • avatar
    obbop

    Wonderful.
     
    When retirement rolls around and my meager funds require dumpster diving for vittles the state will demand I remit their retail values’ sales tax amount or contend with the full weight, force and “mightyness” of the law.
     
    Yes, SOME states do have sales tax on store-bought victuals.
    Some on some groceries.
    Others on hot ready-to-eat grub.
    Practices vary.

  • avatar
    SP

    Why are used or secondhand goods taxed at all?  Dealers don’t pay sales tax on the vehicles they sell.  But private sellers pay sales tax on the full value of the car.

    If the private seller is able to sell his car, that means there must be some residual value left in the car.  That means the private seller didn’t use the full value of the car.  But he paid tax on the full value of the car!

    Will the private seller get a refund for the tax they paid on that portion of the car’s value that they will never get to use?

    NOPE.

    If you think about how many times a car gets resold, it might change hands, what, an average of 4 times before being scrapped?  Sold once at full price, once at half price, once at 1/8 price, and once at 1/16 of the price, perhaps?  That adds up to 1.69 times the original purchase price of the car.  That means the state could take up to 169% as much tax revenue from the public over the life of the car.  (Although it may be offset by the chilling effect that the increased taxes will have on the number of car purchases.)

    Don’t you think this qualifies as a significant change in policy?

  • avatar

    I live in Illinois. Oh, what a joyous financial state we’re in. I think our state’s raising taxes again, but that’s all the state gov does here.

  • avatar
    Jerome10

    Tough one here.
     
    I hate taxes.  Its clear that gov’t can’t control spending, so they find plenty of creative new things to tax, then tell us its “for the kids, for the environment, for safety, for health” or any number of other reasons, and we’re just supposed to take it.  Uh, no.
     
    However, I know taxes are indeed necessary to some point.  And I have to support something like this, where the field is level, vs some patchwork that gives particular people/groups an advantage over another.  In my opinion, this is part of the mess too.  People with the knowledge, connections, and ability are often favored over the common man, and this is incredibly wrong in my eye.  My biggest is tax incentives for certain businesses.  Why, for instance, does Volkswagen get massive tax incentives from Tennessee, while everyone else essentially pays the bill?  It is far more fair, and I’d guess overall healthier for an economy, if taxes were levied in a way that everyone competes on a level playing field.  Focus on reducing taxes for EVERYONE….every person, every business, and let people and businesses decide where to locate based on that.  But picking and choosing groups that receive benefits while others pay for it is not proper.
     
    So, here, either the sales tax should be paid by everyone, or dealers should not have to pay sales tax on used vehicle transactions.  Level playing field.

  • avatar
    beefmalone

    I’m a part time dealer in MS and we deal with the same BS, but only on cars over 10 years old. They’re exempt from sales tax between individuals, but from dealers we have to collect 5%. It puts us at a disadvantage, but I’m taking the opposite view which is they should just do away with taxing anything over 10-15yrs old altogether. I’d much rather the government try to do more with less than less with more.

  • avatar
    aspade

    In Maryland you pay the full 6% sales tax to title the car, new or used, regardless of who you bought it from or any trade in.  That’s a reasonable way to do it.

    What’s obscene is that they charge you sales tax on the imaginary selling price of the vehicle before manufacturer incentives are deducted.  The last car I bought had a $4,000 rebate – or more accurately, a sticker price divorced from reality by $4,000.  The state took $240 of that.

    • 0 avatar
      Omnifan

      Maryland has no sales tax on cars, rather it is a title tax you pay on transferring the title.  When I lived there many years ago, I had to pay title tax on a 10 year old car.  Wasn’t a whole lot of cash, BUT, I had a friend who moved there at the same time with a six month old car he’d already paid sales tax to another state, then had to fork over the same tax again to Maryland as a title tax.

  • avatar
    dancote

    ARRRGGHH! My blood is boiling. State: you got your pound of flesh when the car was sold the first time. I can’t stand that you get your second, third … Nth bite at the apple at each subsequent sale. Do I put a lower price on the Bill of Sale when I sell used vehicle? Do I ask a Seller to put a lower sale price on the Bill of Sale when I buy used?  Assuredly not in case you’re checking and you know who I am.

    And don’t muddy the waters with the “leveling the playing field argument”. If you’re a Used Car Dealer and your state charges sales tax on used car sales, get the law changed. You certainly have more clout than the guy who may sell 1 used car every 3-5 years.

  • avatar
    bunkie

    I heard a great quote on Prairie Home Companion:

    “Americans are irrationally optimistic. 36% of them believe that they will never die and that their taxes will always go down”.

    It’s easy to blame politicians. It’s much harder to look in the mirror and face up to our own irrational expectations.

  • avatar
    wallstreet

    I’ve to give Steven Lang credit for operating in GA. That’s how you can maximize the profit margin on each & every deal.

  • avatar
    MadHungarian

    Full disclosure; I live in GA and I have bought cars from private parties and so I have benefited from tax-free private sales.  Before 2005 I lived in PA which does tax private sales, so I have experienced both systems.  IMO, taxing private sales does not eliminate curbstoners.  In fact, curbstoning was far, far more blatant in and around Philly than I have seen in Georgia.  I suppose there are worse ways for Georgia to raise more revenue.  Better this than another of the numerous “special purpose local option” sales tax hikes that are allegedly temporary but never go away.  However, it is a regressive new tax, because it will fall primarily on lower income car buyers — and, to make it worse, effectively penalizes cash buyers, because the private sale is much more likely to be a cash deal.

    • 0 avatar
      M 1

      Progressive/regressive taxation is a myth. ALL taxes will hit the lower-income people harder. You can’t “tax the rich” because the rich have the option of simply not playing once you raise the stakes high enough. I can guarantee you this is done, I played fly-on-the-wall to many such discussions come December 2008.
       
      But it sure plays well shouted from a bullhorn on a vote-buying tour, doesn’t it?

  • avatar

    i never understood why you have to pay tax on a used good (car).  the tax has already been paid on it when it was new.

  • avatar
    Steve65

    Gotta pay for the roads somehow, and a vehicle tax seems as reasonable a way to do it as any other.
     
    I’d do it based on weight or axle loading, but that’s just me.
     
    Here in California, you’re technically required to pay “use tax” (aka sales tax) on ANY private party sale – not just vehicles. But aside from houses and cars, not many of the things that change hands privately are worth the effort for the state to persue collection. So it never gets paid, and most people aren’t even aware they’re supposed to pay it.

  • avatar
    zeus01

    Progressive/regressive taxation is a myth. ALL taxes will hit the lower-income people harder. You can’t “tax the rich” because the rich have the option of simply not playing once you raise the stakes high enough. I can guarantee you this is done, I played fly-on-the-wall to many such discussions come December 2008. But it sure plays well shouted from a bullhorn on a vote-buying tour, doesn’t it?

    Absolutely true. The problem is that too many socialist-minded folks think that if the rich had less, somehow the rest of us would have more. It’s not fair that those rich movers and shakers of society (who provide goods, services and JOBS to the rest of us) can simply pick up their ball and go play elsewhere (like in China for example) if taxes become too stringent for them here. It’s not fair that various levels of government provide tax incentives (bribery using tax dollars generated by the public?) to local and multi-national corporations to “please stay, don’t leave and kill our economy!” It’s not fair that the feds instead impose the full brunt of the taxation laws on those who do not have the financial wheretofore to leave.

    But they do.

    Deal with it! Start a business, using the same tax breaks that other business owners use. Or sell your house, cars, investments and any other assets you may have, pull up stakes and move to Costa Rica. Or Equador, Lake Chapala, Mexico, Panama….. And reinvest in rental properties there using money from the sale of your house. And renounce your citizenship back home to escape the income tax the feds will likely try to collect from you if you don’t.

    Like it or not, both the US and Canada were built on a system of free enterprise. As unfair as it may sometimes be (and an absolute bee under the bonnets of those envy-driven souls who simply can’t bear to see others do better than them), it still kicks the living crap out of any socialist equal-sharing-of-misery system that would have us all riding bicycles, taking mass transit, living and working five minutes from home and paying obscenely high rents for living in a state-owned apartment.

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