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Written by ASC Title & Tags July 2, 2018
In our last article we address getting a gift from someone from out of state and the issue that the may not be able to prove that sales tax was paid on the car. In that instance, they can sell the car to you for a low price, but not give it to you. Today, we will discuss more about selling a vehicle below market value.
There are plenty of reasons for selling a vehicle for less than market value. Here are a few:
There are plenty more, but you get the idea. The question then is this: Is it legal to sell a car below market value. The short answer is yes. While there are other states that charge tax on the book value of the the vehicle, Pennsylvania only somewhat does that. Here is the inside scoop on how it is handled.
Pennsylvania uses the NADA book for valuing vehicles on any vehicle 15 years old and younger.. You may find the value of your car by visiting nada.com. Be sure to plug in the correct information BUT do not enter miles. The Department of Revenue (PennDot has nothing to do with this other than collecting the money!) doesn't care how many miles you have on the car. They don't care about condition, either. I know, you are already thinking, “That isn't fair!”. Suck it up buttercup. “Fair” and “the law” many times have nothing to do with each other. Keep reading until you get to the end and don't dwell on the small things. The value you are seeking is not trade-in or any of the other things you may see that have to do with condition. Remember what I said about condition? Look at “Average Retail”, the number a dealer will sell the car for. A dealer is trapped with 30 day warranties, financing issues and overhead that Joe Bloe doesn't have when he sells his car out of his driveway, so it is already an inflated price. The Department of Revenue allows the price to be only 80% of the retail value to make up for that inflated price. For example, if the retail value is $10,000, it can be sold at $8000 with no issues. Less than that amount triggers an audit letter.
Let's talk about a cost of less than 80% and what to do. If the agreed sale price is less than the 80% threshold set forth by the Department of Revenue, the title agent will require the completion of an MV-3. Here is what an MV-3 looks like:
Both the buyer and the seller sign this document and it gets notarized. Included is an area where it can be explained why the vehicle was sold for below market value. Once that is completed, it will be submitted with all the other transfer documents. Once Penndot receives it, it makes no difference, you will receive an audit letter from the Department of Revenue. That letter will tell you that the value of you cars is a specific amount and you need to send that money in or they will file a lien against you. They indeed do file liens, we have seen it done before, so do NOT ignore the letter.
Here's what you should do. Make sure you have a receipt for the the purchase of the car. Here is what is should contain:
Please hold onto that receipt as you will get an audit letter between 3 months and 2 years after you purchase the vehicle. Sometimes you won't even own the vehicle by the time the letter shows up. Do NOT ignore it. Send a copy of this receipt with the letter sent to you by the Department of Revenue. This most likely will resolve any financial obligation the State has put upon you. I know what you are thinking. Why don't I just keep a copy of the MV-3? It is already signed by both parties and notarized! Simple answer. The Department of Revenue does not accept the MV-3 as proof of less than market value purchase. One last thing. If the vehicle is 16 years old or older, the minimum price it can be is $500. If it is less than $500, please make sure you have a receipt.