Selling a car and putting down 'gift' on the bill of sale when it's not really a gift... problem?

November 24, 2011 8:45 AM

Selling a car and putting down 'gift' on the bill of sale when it's not really a gift... problem?

Finally have someone wanting to buy my car (20,000). With the economy being down, the price is lower than I had hoped, but I really need to move it. But he's asked me to write 'gift' on the bill of receipt. I've never sold a car before, but I'm guessing that's for tax purposes.

I'd rather not, but I'm not sure if he will kill the deal if I refuse. I haven't responded to his request. Beyond moral or ethical aspects, is this risky? What could happen? Is this just a white lie? Or is this a serious crime that could come back to haunt me.

In all honesty, I've already decided not to do it, but I'd like to have a response that includes a 'why'. I'm not saying he deserves a why, it would just makes me feel more in control.

This is in the state of Florida if that matters.

posted by ratherbethedevil to law & government (24 answers total)

It's so he doesn't have to pay sales tax on the transaction when he takes it in to get registered. The only way I could see this going bad is if some events transpire and you have to sue the guy for financial reasons surrounding the car. You're essentially saying no money was given to me for this car even though he's giving you a "gift" of money as a separate transaction.
posted by msbutah at 8:55 AM on November 24, 2011

Has he proposed some way to explain the transfer of $20,000 between the two of you? I would think that the root of any potential problems would be the appearance of $20,000 in one of your bank accounts.

According to Wikipedia Florida has a sales tax, so he's proposing tax evasion, right? It sounds like there might be county taxes that apply too because the Florida Motor Vehicles site tells you to contact your local tax collector for instructions.
posted by XMLicious at 8:59 AM on November 24, 2011 [1 favorite]

You should ask a lawyer.
posted by hydrophonic at 9:00 AM on November 24, 2011

Or just tell him that your lawyer advised you not to do it.
posted by hydrophonic at 9:01 AM on November 24, 2011 [6 favorites]

He is trying to beat the sales tax, but it won't work. In most states they collect sales tax when the car is registered or the title transferred based on the Blue Book value of the car regardless of the sale price. In some places, true 'gifts' can only be between family members. Look up the info on your state's RMV site.
posted by Gungho at 9:03 AM on November 24, 2011 [5 favorites]

100% tax evasion for him and something bad for you, the accomplice/affirmer on paper. However, I don't know if in practice everyone sells cars that way or not, so you might have to if you want to sell the car. And yes, it will work to avoid the tax and doesn't have to be between family members in Florida.
posted by michaelh at 9:09 AM on November 24, 2011

Based on my experiences buying and selling used cars from private parties (and your previous question about the low-mileage BMW 2002), I think it is unlikely that he'll walk if you refuse. Not impossible, but unlikely.

Just in case, though, it might be good to figure out how much the sales tax will cost him. That way, you can offer to knock that amount, or some fraction thereof, off the agreed-upon price, if you're so inclined.
posted by box at 9:14 AM on November 24, 2011

I was standing in line behind someone at the DMV who had done this in an attempt to avoid paying sales tax. Not only did it not work as intended, but she had to pay sales tax on the full dealer KBB value, which was much more than she'd paid for the car in a private party sale.
posted by KathrynT at 9:45 AM on November 24, 2011 [2 favorites]

I wouldn't consider anything misleading you intentionally put on a form being submitted for tax purposes a "white lie". He wants to evade paying the sales tax. You're making the right decision by not helping him do so. Does he really think he's the first person to try this? I'd imagine it's pretty easy to detect by the state.
posted by PhillC at 9:47 AM on November 24, 2011

This isn't directly related to to your question, but if you are concerned about his killing the deal over this, and you are more concerned with selling the car quickly rather than getting the best deal, couldn't you maybe knock a little off the price? I'm not saying you should, but that seems like a reasonable way out if you are that concerned about him killing the deal.
posted by breakin' the law at 10:38 AM on November 24, 2011

At least in WA state a suspiciously low price, including "free" or "gift" will trigger an assessed retail value to be applied.
posted by bz at 11:55 AM on November 24, 2011

I have only ever seen vehicle gifting work between family members, as someone mentioned above. He's going to have to pay the tax.
posted by erstwhile at 12:39 PM on November 24, 2011

If you agree, you will be guilty of conspiracy.
posted by Sys Rq at 1:13 PM on November 24, 2011

IANAL, IANA accountant, either, but last time I looked the taxable limit on gifts was $10,000 - he might be able to escape state sales tax or vehicle registration fees with this little bit of fraud, but he's still subject to federal income tax on it. So this is not an especially clever plan on his part.
For you, though - it seems unlikely to me you'd be penalized even if he gets caught, no matter who catches him but you're still helping someone try to commit tax fraud, however incompetently. So you're balancing the low risk of getting caught (potentially expensive and embarrassing) and the certainty of doing something wrong (depending on your personality, humiliating, thrilling, or indifferent) against the risk of getting a worse price or delaying the sale (depending on your circumstances, catastrophic, inconvenient, or indifferent).

I could tell you which one I'd go for, but you're you.
posted by gingerest at 3:12 PM on November 24, 2011

But wouldn't the OP as the recipient of $20,000 also be subject to income tax? That actually seems to me to be the primary problem that this could cause: reselling a car s/he evidently paid much more for would be a loss, but $20,000 received as a gift or for no particular reason would be federally taxable income.
posted by XMLicious at 4:14 PM on November 24, 2011 [1 favorite]

Um. I'm probably flaunting my ignorance, but if you write "gift" on the title and his check bounces. How do you get redress?
posted by Ys at 4:42 PM on November 24, 2011 [3 favorites]

Oh, good grief, XMLicious, thank you, I canNOT believe I didn't factor that in. Of course OP would be on the hook for the income.
posted by gingerest at 5:03 PM on November 24, 2011

Randomly selected as the first Google result for Florida, is this for Martin County:

Q. Do I pay sales tax on a gift?
Sales tax is not applicable on a gift; however, a bill of sale or an affidavit with the full description of the vehicle (including vehicle identification number, title number, make, model, year, etc.) should be completed by both parties to verify this information for the Department of Revenue.

Q. I just purchased a new/used car in Martin County. How much will my sales tax be?
Florida sales and use tax in the amount of 6% is collected on the purchase price, less trade in, on all vehicle transfers of ownership. A local discretionary surtax may also be charged based on residency. The Martin County surtax is 0.5%.

He wants to do this for $1200 and a surtax if it is applicable in your county. To do this, you need to sign an affidavit (but note that there's no rule that gifts only happen between relatives). If you are pretty sure that the deal will fall through if you don't sign the affidavit, you could counter-offer to come down on the price by the same amount he will spend on tax.
posted by Houstonian at 7:47 PM on November 24, 2011

While I've never marked anything "gift", I've always vastly understated the value of vehicles and the money that actually changed hands on every vehicle I've ever bought or sold not from a dealership. Nothing bad has ever happened from it.

You know, besides the crushing guilt that I'm gaming the system...
posted by teishu at 7:55 PM on November 24, 2011

But wouldn't the OP as the recipient of $20,000 also be subject to income tax?

Yeah, I think this is your main problem. If you are audited, that $20k deposit is going to be a red flag. Why open yourself to liability merely as a favor to someone who is trying to evade taxes? No upside for you at all, and a considerable potential downside--even aside from the questionable ethics of abetting a tax evader.
posted by torticat at 10:35 PM on November 24, 2011

The OP would not need to pay tax on the car sale income UNLESS the OP made a profit. Most cars are sold for an amount far less than the original sale price, so the OP will probably not need to worry about being taxed.
posted by 200burritos at 6:34 AM on November 25, 2011

Oop, ok. Sorry. Thanksgiving turkey hangover. I just realized that y'all meant if the 'gift' plan went through as proposed, not if the OP went through legal routes.
posted by 200burritos at 6:36 AM on November 25, 2011

It's my understanding that, for federal tax purposes, gifts are taxable to the giver, and not included in the recipient's income. 200burritos is also right that proceeds from the sale of a used car are not federally taxed, unless a profit was made. So I'm not sure that this scheme would have many federal tax implications. It does look like a fairly transparent attempt to evade state sales taxes, though, and seems like a bad idea for that reason.
posted by burden at 6:48 AM on November 25, 2011

Wow, so much information. Thanks everyone for your answers. Too many to pick a best one.

I decided to tell him that it had almost no chance at working, and if they didn't take 'gift', they would probably access it at bluebook price, which was higher than what he paid. He seemed satisfied with that answer.

Thanks again!
posted by ratherbethedevil at 5:36 PM on November 25, 2011