Illinois Imposing Car Trade-In Tax On Jan. 1; Dealers Call It Double Taxation

[REWahoo]

Yes, to me, it's a money grab, pure and simple.

Now, I can understand if someone goes out of state to try and avoid the state tax (live in Tx, buys out of state, then tries to register in Tx), but for someone that has moved to Tx from out of state, and having owned a vehicle several (2,3 or 5 years.... sorry, that's just bull$#!^. I mean, if you bowght it 10 years ago are they going to go all the way back to the original purchase and tax it?

Maybe TX should increase the transfer tax because it doesn't seem to be putting a damper on folks moving here.

If it was me and I was going to face paying additional sales tax on a car I had owned for years, I would give consideration to selling it before relocating and buy something here. However, I doubt many new residents are aware of this tax policy until they fill out the transfer of title form and get hit with the bill.

 

[aja8888]

Yes, to me, it's a money grab, pure and simple.

All taxes are money grabs.

 

[Tiger8693]

Good thing state income taxes aren't money grabs.

Well, there is that!

However, I don't think states that have an income tax () go back and determine the last 2,3 or 4 years income and try to apply State tax once you move in.

But thinking further, as mentioned, SC only charges a max auto sales tax (I think $300 the last time I was there), but every year you get a Property Tax notice on your vehicle which is quite a bit (depends on the year, value). And i am sure that SC doesn't care that folks from Tx paid 6.4% Sales tax at purchase, and once you are a SC resident, you will start paying that annual property tax.... hmmmmm.

Well, as they say, two certainties in life.....

 

[HFWR]

Is there any other product that gets this kind of favorable tax treatment?

Employer-subsidized health insurance?

 

[Gumby]

That's the way it works here. We pay yearly property tax on the value of our cars at the same rate as we pay on our house. Doesn't matter where you bought it or how much tax you already paid elsewhere. If it is registered in the state, you pay. Since mill rates vary from town to town, you could pay 2-3 times as much tax for the same car in one town as you would in the town next door. In my town, we pay about 2.8% of the vehicle's value every year. If I lived next door, in Stratford, I'd have to pay about 4.0%.

On car purchases, we only pay sales tax (6.35%) on the price net of any trade-in.

 

[mystang52]

Is there any other product that gets this kind of favorable tax treatment?

I don't see this as favorable tax treatment. Hypothetically:
Buy a 40,000 car, and trade in a car for 10,000.
Pay sales tax on the net 30,000.
Dealer then sells the trade-in for the same 10,000.
The state ultimately collects sales tax on the full 40,000 price. What Illinois is now doing is definitely double taxation.

 

[Gumby]

I don't see this as favorable tax treatment. Hypothetically:
Buy a 40,000 car, and trade in a car for 10,000.
Pay sales tax on the net 30,000.
Dealer then sells the trade-in for the same 10,000.
The state ultimately collects sales tax on the full 40,000 price. What Illinois is now doing is definitely double taxation.

That happens regularly in private sales. I buy a new car for $40,000 and pay $2540 in sales tax (6.35% of 40k). I keep it for 5 years and sell at a private sale for $10,000. The new buyer has to pay $635 in sales tax to the state in order to register the car. It is only dealers who have enjoyed the "net price" treatment all these years.

 

[RunningBum]

Yes, it does apply when you transfer/register an owned motor vehicle into the state.

When registering a motor vehicle in TX that was purchased out of state, you must pay 6.25% in sales tax, less any sales taxes paid to the purchasing state. The tax is based on the sales price of the vehicle without regard to when it was purchased.

To confirm, here is the sales tax computation section from TXDot Form 130 U, "Application for Texas Title and/or Registration".

I don't think that's right. I don't see an official definitive answer but I see less official sites say that you pay the lesser of the TX 6.25% - your old state tax, and the $90 New Resident tax. That makes a lot more sense.

The DOT site at https://txdmv.gov/motorists/new-to-texas says

As a new resident, you also will pay sales tax-related fees required by the state's Comptroller of Public Accounts. Sales tax fees on a vehicle can be $90 or the difference between your previous state's sales tax and the Texas sales tax.

Note that it only says OR, and doesn't say which to do when. But $90 is 6.25% of $1440. Does it really make sense that they would have a special case to pay at least $90 even for a car worth less than $1440? Or does it make sense that they would just have a $90 fee, which you can negate if you can prove that you paid more than 6.25%-$90 of your car's original purchase price in other state's fees?

The form instructions are vague on it too, but it talks of checking the box if you are a new resident, implying that this is the fee you pay. You don't check the box to pay the 6.25% tax on a new purchase. Again, I'm implying this, as the form is vague, but it just makes no sense any other way.

If you're a TX resident and go out of state to buy a car, you have to pay that 6.25% tax less the tax in the state you bought it from, but this is different from the New Resident fee.

As I said before, I'm pretty certain I didn't pay a huge sales tax when I moved to TX and brought my used car with me. I know I didn't bring my original sales paperwork with me, which would have been required. That was 2001 though, so maybe it changed, but I really doubt it.

I don't care to research it further so I'm not going to debate this or argue it further. If you're moving to TX, check it out for yourself. Don't take my word on it, but I wouldn't take REW's on it either.

 

[CardsFan]

That happens regularly in private sales. I buy a new car for $40,000 and pay $2540 in sales tax (6.35% of 40k). I keep it for 5 years and sell at a private sale for $10,000. The new buyer has to pay $635 in sales tax to the state in order to register the car. It is only dealers who have enjoyed the "net price" treatment all these years.

This depends on the state. Speaking only for MO. In this case, did you then buy another car? If not, you are correct. If you did, you get the offset on sales tax. Private sale or dealer sale does not matter.

Of course, we also have a personal property tax, which means we pay an additional tax every year for the right to still own the vehicle.

 

[REWahoo]

I don't care to research it further so I'm not going to debate this or argue it further. If you're moving to TX, check it out for yourself.

Agreed.

For those of you who do check it out, good luck in finding more definitive information online than has been posted here. Best bet may be to call the County Tax Office where you plan to move and ask.

 

[JoeWras]

Well, there is that!

However, I don't think states that have an income tax () go back and determine the last 2,3 or 4 years income and try to apply State tax once you move in.

But thinking further, as mentioned, SC only charges a max auto sales tax (I think $300 the last time I was there), but every year you get a Property Tax notice on your vehicle which is quite a bit (depends on the year, value). And i am sure that SC doesn't care that folks from Tx paid 6.4% Sales tax at purchase, and once you are a SC resident, you will start paying that annual property tax.... hmmmmm.

Well, as they say, two certainties in life.....

NC too. The "optimistically calculated" value of your car is taxed at the real property rate and you get charged yearly.

And we have income tax.

It is one reason I'm not in a hurry to upgrade my ride. One of the benefits of an older car is lower personal property tax.

 

[HadEnuff]

Fargin bastidges!!!

 

[CRLLS]

Getting back to Illinois taxes, at least they abolished the annual personal property tax back in the late '60's. I got my first and last personal property tax bill at the young age of 15 yrs. And I paid it.

 

[ncbill]

NC too. The "optimistically calculated" value of your car is taxed at the real property rate and you get charged yearly.

And we have income tax.

It is one reason I'm not in a hurry to upgrade my ride. One of the benefits of an older car is lower personal property tax.

Don't forget the 3% "highway use tax" on any new NC vehicle registration, whether on a purchased vehicle (new or used) or one you already own brought in from out of state.

 

[JoeWras]

Don't forget the 3% "highway use tax" on any new NC vehicle registration, whether on a purchased vehicle (new or used) or one you already own brought in from out of state.

Dang. Here I am busting on my old state of IL, and maybe I have to look in the mirror at my current state. I'm paying a lot of taxes!