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  1. #1
    Join Date
    Apr 2009
    Posts
    7

    Default Legal Tax Avoidance Method

    I am in California, and the state has recently decided to up the vehicle license fee and sales tax. We now will pay 1.15% of the vehicle's value to license it. Sales tax is now at 8.75% or more, depending on county.

    I am in the market for a used vehicle and am trying to figure a way to reduce my tax burden legally.

    I am looking for vehicles, and noticed that many of them come with optional warranties. If I was to negotiate a deal with the dealer to knock down the price of the vehicle and pay a premium for the warranty, wouldn't that knock down the sales tax and VL fee?

    For instance.....

    If a truck was listed for $10,000 I might offer $7000 for the truck and buy a warranty from the dealer for $3000. This way the recorded price for the vehicle would be $3000 less....and that would be reflected in lower tax and VL fee costs.

    One does not have to pay for tax on a warranty, correct?

    Is this legal? If not, should I care?

    I know a LOT of private sales do not get recorded correctly between buyer and seller for the purpose of saving the buyer $$ when it comes time to pay sales tax when the title is exchanged. This seems like a legal and pretty straight forward way of getting some well deserved tax relief.

    "I got a hell of a deal on the truck, but the warranty was a rip-off!"

  2. #2
    Join Date
    Oct 2005
    Location
    California
    Posts
    1,206

    Default Re: Legal Tax Avoidance Method

    Many people have thought of the same scheme....and so have the lawmakers in Sacramento. I think you'd have a difficult time convincing any reputable dealer to do it and I'm certain many people have tried.

    As I'm sure you know, reporting a much lower price for tax purposes happens all the time between private buyers/sellers. The state has tried to minimize it by requiring both parties to state what the sale price was rather than just the buyer. I've often wondered if the state would even notice a discrepancy if it occurred (I give them very little credit).

    It used to be easy to avoid sales tax on luxury yachts and airplanes but the loophole has been closed.

    If you have either parents or grand parents who live out of state, it's possible to avoid sales tax on a motorcycle or an automobile but I won't go into that. If you read the DMV rules, you will easily figure it out.

  3. #3
    Join Date
    Mar 2009
    Location
    LA LA Land
    Posts
    9,170

    Default Re: Legal Tax Avoidance Method

    Quote Quoting schmatt
    View Post
    I am in California, and the state has recently decided to up the vehicle license fee and sales tax. We now will pay 1.15% of the vehicle's value to license it. Sales tax is now at 8.75% or more, depending on county.
    Crazy, isn't it!

    Quote Quoting schmatt
    View Post
    I am looking for vehicles, and noticed that many of them come with optional warranties. If I was to negotiate a deal with the dealer to knock down the price of the vehicle and pay a premium for the warranty, wouldn't that knock down the sales tax and VL fee?
    Of course it will!

    Quote Quoting schmatt
    View Post
    If a truck was listed for $10,000 I might offer $7000 for the truck and buy a warranty from the dealer for $3000. This way the recorded price for the vehicle would be $3000 less....and that would be reflected in lower tax and VL fee costs.
    True!

    Quote Quoting schmatt
    View Post
    One does not have to pay for tax on a warranty, correct?
    Correct!

    Quote Quoting schmatt
    View Post
    Is this legal?
    NOPE!

    Quote Quoting schmatt
    View Post
    If not, should I care?
    You might not care… But I bet you the dealer will!
    I know you’re going to ask me why, right?
    Its because automobile dealers as well as the individual sales people working there are licensed by the DMV. Yupp… The same agency that also collects the sales tax & the VLF fee. So although you might benefit by saving on taxes & fees, the dealer wants to keep his license… Just a guess!

    Let’s look at your brilliant idea for a minute… You suggested that you would request that the dealer knock off $3000 off the price of the $10,000 truck and then you’d pay him that $3000 back for a warrantee in addition to $7000 for the truck, and since the $3000 is not taxable you would save the amount of the tax/VL fee increase.

    That increase, by the way, amounts to the 1% sales tax increase PLUS the 0.5% VL Fee increase, right?

    For a total of 1.5% savings on the $3000 non-taxable warranty price.

    And that means that your “much needed tax relief” will total = $3000 X 1.5% = $45

    BIG SAVINGS!!!
    Quote Quoting schmatt
    View Post
    I know a LOT of private sales do not get recorded correctly between buyer and seller for the purpose of saving the buyer $$ when it comes time to pay sales tax when the title is exchanged. This seems like a legal and pretty straight forward way of getting some well deserved tax relief.
    That too is illegal, but you know what? Sometimes the answers that we might be looking for are right before our eyes and yet we still cannot see them.

    If like you stated before, you don’t care about fudging number and committing tax fraud, then your answer might be in buying your truck from a private seller. I guess they can, at times, be more flexible than licensed auto dealers.

    Now, if all of that doesn’t sound ridiculous enough, let me add to it by saying that IF you picked a $10,000 truck, knocked off $3000 off of its taxable price and then paid the dealer the $7000 + tax and VL fee in addition to the $3000 nontaxable amount for the warranty, which adds up to the original $10,000. But wouldn‘t that mean that the dealer will be giving you the warranty for FREE????

    If you ever find that dealer, would you come back and post his name and address? I personally will pay him double the amount of the increase if he’ll give me the warranty for free!

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