DQOTD: Sales Tax with Trade In?

[Midpack]

I made a midsized purchase today and had an ugly exchange with the merchant unfortunately. In retrospect I wish I’d just paid and kept my mouth shut, the discrepancy was $22 - not worth the ill will.

The merchant applied sales tax to the full purchase price, and subtracted my trade in. Call it $1000+tax - $300.

I wasn’t sure beforehand so I researched online before the transaction and my understanding is you pay sales tax on the net of purchase price minus trade in. When I told the merchant that’s what I was expecting, he was polite but clearly offended. Other associates standing nearby were clearly offended and thought I was being petty. They didn’t say anything but it was clear. Call it $(1000-$300) or $700+tax.

They agreed to charge sales tax on net only without arguing, but they clearly didn’t agree with me. It’s a business that doesn’t take trade ins everyday, so I probably surprised them.

I’ve since looked into it further to find 42 of 50 states do not charge sales tax on trade ins, not just NC. Anyone who’s bought a car***, boat or other major item with a trade is probably aware. And when a CC credit is issued, IME sales tax is also refunded on the amount.

If a bunch of you tell me is was wrong, I’ll go back and reimburse them. I still regret making them so uncomfortable regardless, wish I could have found a graceful way to come to an agreement.

***[edit: I was sure I was right for cars, but I checked further to make sure it wasn’t a car only exception. Not in NC as far as I can tell]

 

[pb4uski]

For cars in my state, the sales tax is based on the net price... $700 in your example.

In fact, if you sell a car and buy another car within x days, you can fill out a form, provide it to the dealer and the dealer will adjust the tax to be on the net amount. I did that one time... ordered a new car for $35,000. Then before the new car was delivered I sold what would have been the trade for $10,000. Provided the form to the dealer and when he sold me the new car the sales tax was based on $25,000.

I'm not sure if the same principles apply for other purchases but I would think that they would.

https://g.co/bard/share/2e9eba8d36da

If I have a trade-in on an item, should I pay sales tax on the gross price or the net price?

You will pay sales tax on the net price of the item, which is the gross price minus the trade-in value. For example, if you buy a new car for $20,000 and trade in your old car for $5,000, you will only pay sales tax on $15,000.

This is because the trade-in value is considered to be a discount on the purchase price of the new item. So, the sales tax is calculated on the remaining amount that you actually paid.

This is the case in most states, but there are a few exceptions. For example, some states have a cap on how much the trade-in value can reduce the sales tax. And in some states, trade-ins cannot be used to reduce sales tax at all.

If you are unsure about how sales tax will be calculated on a trade-in, you should contact your local tax authority. They will be able to provide you with the specific rules that apply in your state.

 

[PaunchyPirate]

In PA, I’ve paid sales tax on (price of new car - price of trade in).

 

[Katsmeow]

When we lived in Texas, the way this usually worked for store purchases was this. They refunded purchase 1 (including Sale tax). I then bought tne replacement item with sales tax. So if the total not including sales tax was $20 on the replacement item I paid full tax on it but I was refunded tax on the item I returned.

 

[jazz4cash]

I made a midsized purchase today and had an ugly exchange with the merchant unfortunately. In retrospect I wish I’d just paid and kept my mouth shut, the discrepancy was $22 - not worth the ill will.

The merchant applied sales tax to the full purchase price, and subtracted my trade in. Call it $1000+tax - $300.

I wasn’t sure beforehand so I researched online before the transaction and my understanding is you pay sales tax on the net of purchase price minus trade in. When I told the merchant that’s what I was expecting, he was polite but clearly offended. Other associates standing nearby were clearly offended and thought I was being petty. They didn’t say anything but it was clear. Call it $(1000-$300) or $700+tax.

They agreed to charge sales tax on net only without arguing, but they clearly didn’t agree with me. It’s a business that doesn’t take trade ins everyday, so I probably surprised them.

I’ve since looked into it further to find 42 of 50 states do not charge sales tax on trade ins, not just NC. Anyone who’s bought a car***, boat or other major item with a trade is probably aware. And when a CC credit is issued, IME sales tax is also refunded on the amount.

If a bunch of you tell me is was wrong, I’ll go back and reimburse them. I still regret making them so uncomfortable regardless, wish I could have found a graceful way to come to an agreement.

***[edit: I was sure I was right for cars, but I checked further to make sure it wasn’t a car only exception. Not in NC as far as I can tell]

I’m only familiar with this policy for autos. I’m confused. They granted your wish so I think you should accept victory and blow that dough. Going back now is gonna be like kicking the crust off an old turd and more paperwork for somebody. Is this merchant one that you really need to have a good relationship with? You did the research beforehand so you could’ve showed them your search results.

 

[badatmath]

Actually I thought it was the biggest known advantage for an auto trade in. Generally you would be offered more money in a private party sale but the trade in eases the tax bite if you go that route. I think you did nothing wrong and that anyone operating a business should know this.

I really want to say even used bookstores used to know this that the trade credit in books offset something. . . but I might be totally imagining this as it has been so long I can't be sure.

I'd not go back though either way. It is over and done. If it bothers them they can do their own research.

 

[Texas Proud]

It is well know here that a trade in reduces the sales tax... all forms that I have seen lays it out nicely...


Now, my BIL used to carry around the law concerning coupons at restaurants where is you paid X you got Y off... or buy one get one free... this came up because of the same reason... they had a bill and added sales tax to two meals and then subtracted one of the meals... so double tax...


I even took it around myself and used it... now it seems that the software that they use does it correctly so no need to show them the law...


BTW, they might not know the law but I bet their accountant fills out the tax return form properly and they get to keep the excess money... they do not just pay what they collect...

 

[VanWinkle]

Illinois had a law that capped the sales tax deduction for a trade-in vehicle to 10,000, even if the trade-in had a much higher value. Luckily, that law was rescinded in 2022 and now the full value of a trade-in is exempted from sales tax.
"If you're in the market for a new car and will be trading in your old one, a new law eliminates a $10,000 credit cap that was set in 2020 as part of the Rebuild Illinois capital plan."

VW

 

[Texas Proud]

BTW, the reason that you do not have to pay sales tax on a trade in for a car is they will collect sales tax when it is sold...



Not many items require sales tax when sold used...