PA Aggressive Sales Tax Approach on Private Used Car Sales
Motor Vehicle Understated Value Program (MVUVP)
It has come to our attention that individuals who are purchasing a vehicle in PA via a private sale may receive a notice in the mail that they are being assessed PA sales tax in an amount greater than six per cent (6%) of the purchase price.
A tax practitioner shared the following story with us: I had a client who purchased a car from a former employer for the blue book value with adjustment for the high mileage (over 200,000). The PADOR sent the individual an assessment for what the DOR felt the car was worth. In response, the taxpayer sent PA documentation to support the purchase price. The documentation included Kelly’s Blue Book Value, an appraisal from a car dealership, photos of the odometer and the inside and outside of the vehicle. Despite the documentation sent to the DOR, the DOR sent monthly deficiency notices to the taxpayer.
The MVUVP allows the PA DOR to assess additional sales tax where a vehicle’s purchase price is significantly lower than fair market value. The PA DOR’s website, working in conjunction with the PA Dept. of Transportation, states that the program targets situations where a vehicle is purchased or sold and the parties knowingly understate the purchase price of a vehicle in order to reduce the sales taxes due on the sale. However, like many programs, there can be unintended consequences.
We have been told that if one goes to a notary tag place for a private sale of an automobile, the notary has been supplied by the DOR with a list of values that the notary has to use for each model, make, year of car, regardless of the agreed upon sales price. The PA DOR value is sometimes greater than the Kelly Blue Book. The parties, to have the tax assessed at the agreed upon purchase price, will need to provide the notary with a listing of the items that are wrong with the car and convince the notary of the FMV is lower than that on the DOR’s chart. How comfortable will a seller be listing the deficiencies of the vehicle being sold in the presence of the buyer? Apparently according to the DOR, the FMV of a vehicle is no longer determined by a willing seller and a willing buyer, but what the DOR says the value of the vehicle is.
Tax Planning Tip: If you are purchasing a vehicle in a private sale transaction, we suggest that you first visit the PA DOR’s website to learn more about the Motor Vehicle Understated Value Program, How to Verify the Purchase Price and the FMV of the vehicle, and your appeal rights.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.
