Buying a used car, truck, or motorcycle in a person-to-person transaction might be a great way to save money at a time when vehicle sales have become really expensive. Just make sure that you set aside cash for sales tax when you budget!
Vehicles are expensive lately
Have you shopped for a used car or truck lately? If so, I bet you were surprised by the sticker price. The average cost of a pre-owned vehicle has increased 30% since pre-pandemic times, thanks to higher prices for new cars and a messed up global supply chain.
This eye-popping 30% statistic (which can be found in a research report here) tracks used vehicles sold in registered dealerships, not in person-to-person transactions. Vehicle sales between two people are harder to track because there’s no group like the National Auto Dealers Association collecting data on these private transactions. But transactions like this happen all the time, and buyers have more options than they used to thanks to sites like Bring a Trailer, eBay Motors, Copart, and Cars & Bids. (I look at car and truck prices for a hobby, and I feel like prices in private sales haven’t gone up as much, but that’s a totally unofficial personal opinion.)
With car, truck, and motorcycle prices at an all time high, person-to-person transactions are looking more and more appealing as a way to save money.
Dealership Or No, You Still Pay Sales Tax
Anyone who buys a vehicle from another person still has to pay sales tax, even though the sale didn’t happen at a business. The rubber meets the road (couldn’t resist the on-the-nose pun!) when you go to get the car registered. The folks at the DMV are either going to want proof that you paid sales tax (dealers take care of this in their mountain of paperwork), or you’re going to have to pay the sales tax after the fact at the DMV or a titling agency. The buyer in a person-to-person transaction doesn’t have to collect sales tax, so they have no incentive to remind you of your sales tax responsibilities. Yet another example where you have to be careful as the buyer!
Maybe your local mechanic also sells vehicles on the side!
I bought my last car from my mechanic. He has a side hustle where he prepares used cars and trucks for resale, and I couldn’t be happier with my purchase. I also used a Dirt Legal VIN check before my purchase, so that I could find out important information about the car I was buying - a cheap and easy route to peace of mind!
When the mechanic and I were negotiating the car’s sale price, I made sure to include the cost of sales tax (6% for my state and 2% for my local municipality) in my budget calculations. After I paid for the car, I knew I’d have to take 8% of the price I negotiated to the third-party titling agency that I used to handle the vehicle paperwork.
If you want to title or register a vehicle with the least amount of time and effort on your part, then use Dirt Legal’s titling and registration services. Our website contains every pro-tip imaginable to help you get street legal with as little effort and cost as possible on your part. Send us whatever documents you have in the mail, and your street legal paperwork arrives shortly afterwards!
Even if you’re buying from someone you know, you still need to get some documentation.
Person-to-Person Transaction? Get a Bill of Sale!
When you get a bill of sale, make sure it includes:
The exact date when the sale is made.
Full name and address of the seller.
Full name and address of the buyer.
Detailed description of the vehicle including make, model, year, color, VIN (Vehicle Identification Number), and any other identifying features.
The current mileage on the vehicle at the time of sale.
The total amount paid for the vehicle. If the vehicle is given as a gift, this should be stated.
Information about how the payment is made (e.g., cash, check, installment). If there are any payment agreements, they should be clearly outlined.
Statement about vehicle condition, e.g. whether the vehicle is being sold ‘as is’.
Signature of both the seller and the buyer. The signatures may need to be notarized, depending on local regulations. Do some internet searching about this based on where you live.
Any required legal disclosures, such as salvage titles or known defects. Again, do some search based on your state!
Any additional terms or conditions agreed upon by the buyer and seller.
It’s hard to get this information after the fact, so don’t let the transaction happen without getting the documentation that protects you! (Read here to find out about trouble that can lurk in your car’s history from long before you ever thought about buying it.)
For my recent purchase, the titling agent then collected my sales tax cash and sent a check in that amount to the state capitol. I have heard stories of buyers and sellers agreeing to understate the purchase price of a car or truck, in order to lower the amount of sales tax that the buyer has to pay, but this seemed risky to me, especially after I learned that Pennsylvania has an understated vehicle value program designed to catch exactly this.
Remember, if you want to avoid dealing with the DMV altogether the next time you have vehicle paperwork, check out what we offer. If it has an engine, we can handle the paperwork for it!
A whole bag of taxes. Wikimedia Commons
Selling a Vehicle? Think about Your Taxes
If you’re on the other side of this translation and selling a car, truck, or motorcycle, then you are generating income that might lead to tax payments. Don’t worry, the news is not all bad if you are selling a vehicle! Part of the reason that it’s wise to notify the DMV about your sale is that this notice officially releases you from liability relating to traffic tickets or criminal actions related to the vehicle. Check out California’s portal for sellers to disclose vehicle sales and see if your state or territory has similar requirements.
Summing Up
By now, hopefully you understand:
How you might save money by buying a car, truck, or motorcycle in a person-to-person transaction
How you can’t register or title a vehicle in your name without proving that you’ve paid sales tax
How getting a bill of sale protects you as a buyer
What a bill of sale should contain
The potential tax implications if you sell a vehicle to another person
Dirt Legal Can Help!
Dealers might make it easy to buy a vehicle, but their services cost a fortune. (Don’t those car and truck payments seem to go on forever!?) Our mission at Dirt Legal is to help regular people get the paperwork they need to enjoy their rides without having to go to a dealership or (maybe even worse) the DMV.
Check out what we offer. If it has an engine, we can make it legal for you to drive it!