Trade car for a car - do you pay tax? (vehicle, 2009)

[ukrkoz]

My son owns a Mazda, that was grand total $16K with repairs and such.

He wants to trade it for a Honda Civic to a private party. They are considering trade value for his Mazda of $13K; the other vehicle is valued at $8.5K and the other vehicle owner is willing to add cash on top of that.

Basically, it's $13K Mazda traded for $8.5K Civic with $4.5K cash add on.

Question is, does my son pay sales tax anywhere in this deal?

Also, we live in WA state, which is one of the 12 states that does not honor exempt on trade ins. But that's on trade ins, not trades like this.

Thank you

[fennec2009]

Found this on another forum which I'm assuming I can't link to : "Just got off the phone with a WA state licensing rep. I was told that even in a private party trade, tax is only paid on the spread, not on the full value of the less expensive vehicle. That seems fair to me."
and
"Basically, if no money changes hand (ie two like-value cars are swapped), no use tax is due (registration taxes would be due as normal). If you trade a higher-value car for a lower value car (or lower-value car and cash), no use tax is due. If you trade a lower-value car for a higher-value car (plus cash) then use tax is due on the "plus cash" amount."

[richb]

Looks like you do in Washington State. That's too bad. Looks like they call it a "use" tax instead of a "sales" tax too, so you pay on the whole "fair market value" of the car not what you paid. That means you will owe more....... Looks like you pay when you register the car.

WA State Licensing: Use tax

[ukrkoz]

Thanks, folks. So they can run those cars trade as gigts and pay no tax, as far as tax was previously paid on each or one of the cars is more than 7 yo, which is the case for that Civic.

Use tax

Use tax is a tax on items used in Washington when sales tax hasn’t been paid. When you purchase a vehicle or vessel from a private party, you’re required by law to pay use tax when the vehicle or vessel title is transferred.
Use tax rates

Use tax is calculated at the same rate as the sales tax at the purchaser’s address. In addition to the general use tax rate, vehicles are charged an additional 0.3% motor vehicle sales/use tax.
Vehicles received as gifts

• If you can provide proof that the person who gave you the vehicle or vessel paid sales or use tax on the vehicle or vessel, no use tax is due.
• If the person who gave you the gift owned the vehicle for 7 years or more and is from a state or province with sales tax, it will be assumed that tax was paid and no proof is needed.
• If the vehicle or vessel is coming from a state or province without sales or use tax, use tax is due.

Frequently asked questions

What’s the difference between sales tax and use tax?

Unlike sales tax, use tax is based on the average fair market value of the vehicle or vessel rather than the purchase price.
Why use average fair market value and not actual sale price?

Fair market value reflects the value of a vehicle according to the retail selling price at the place of use, compared to similar vehicles of like quality or character. The actual selling price may or may not be the same as the average fair market value in cases when an individual sells a used vehicle or vessel.
How is the fair market value determined?

We get average fair market values from Price Digests, an industry standard source.
What if a vehicle or vessel is worth less than the average fair market value?

To establish that a vehicle or vessel is worth less than the average fair market value, the buyer may provide:

• An estimate of repairs prepared by a registered mechanic.
• An appraisal prepared by a registered dealer.
• Documentation from another value source, such as National Auto Dealers Association (NADA) or Kelley Blue Book that cites a lower average fair market value for the vehicle or vessel. The purchase price will be accepted if it is within $2,000 of the value cited by the alternate source. Either photocopies of printed materials or a printout from the Internet are acceptable.
• A completed Department of Revenue Declaration of Buyer and Seller Regarding Value of Use Vehicle Sold form stating the selling price and condition of the vehicle. Both the buyer and the seller must sign the form. These are subject to review.

[ukrkoz]

Originally Posted by fennec2009

Found this on another forum which I'm assuming I can't link to : "Just got off the phone with a WA state licensing rep. I was told that even in a private party trade, tax is only paid on the spread, not on the full value of the less expensive vehicle. That seems fair to me."
and
"Basically, if no money changes hand (ie two like-value cars are swapped), no use tax is due (registration taxes would be due as normal). If you trade a higher-value car for a lower value car (or lower-value car and cash), no use tax is due. If you trade a lower-value car for a higher-value car (plus cash) then use tax is due on the "plus cash" amount."

What is "spread" btw?

[fennec2009]

The difference between the value of both cars. If they were trading vehicles with no additional cash add-on the spread would be $4.5K (and the person with the cheaper car would owe use tax on that difference)...since the other person is adding in extra cash to make up for the difference in value, there would be no spread. Just note as you found above that WA goes by the FMV of the cars, not the actual sales price. If they find that one of the vehicles was over or undervalued, it could affect the spread.

[ukrkoz]

Gotcha. Looks like he is trading more expensive vehicle for less expensive, even with cash add on. Maybe the other guy may pay something. ANd we have all the paperwork confirming prices and taxes and such. Be awright.

[jaykee]

I have a fully operational 1997 Mercury Mountaineer I want to trade in for another family SUV.

[jaykee]

I am looking to trade in my 1997 Mercury Mountaineer for another Family SUV. Do you have any suggestions?

[jaykee]

I am looking to trade in my 1997 Mercury Mountaineer for another Family SUV. Do you have any suggestions?