Charging sales tax on a vehicle isn’t as simple as pushing a button on a register.
State statutes require county treasurers to charge sales tax on the price listed on a vehicle’s title, unless the price listed is significantly lower than the vehicle’s fair market value. When a purchase price appears undervalued, treasurers are asked to charge sales tax by the fair market value price of the vehicle, as listed by the National Automobile Dealers Association appraisal guides. Customers can then fill out a refund worksheet and send it in to the state sales tax division, where experts will look deeper into the situation to determine if the listed purchase price was reasonable or legitimate, and the customer will be refunded.
Though a refund process can be inconvenient at times, the procedure is used to prevent sales tax fraud.
“I have a truck here that was purchased for $50, and it’s newer than the one my husband purchased for $3,000. Instead of me going and questioning them, I go by the fair market value and they can fill out the form for the state and the state will ask them questions. If the state believes it’s a reasonable amount, they’ll refund the money,” said Teresa Nelson, McPherson County Treasurer.
This process applies to vehicle purchased from non-dealers and non-family members. Vehicle purchases made between family members are sales tax exempt.
In the case of older vehicles, it’s tough for a county treasurer to tell the condition of a vehicle from limited information on a piece of paper. This process ensures that vehicle experts at the state level can collect the additional information needed to appraise a vehicle when it appears undervalued.
"With older vehicles, $1,000 might seem high if it’s in poor condition. If it’s fixed up and considered an antique, it’s worth way more than $1,000. That’s why the state also requires that they send pictures of the truck as part of that refund process,” Nelson explained.
Though the process has been part of state statues for over 30 years, not all counties were unified in the implementation of the procedure.
In September, two representatives from the sales tax division met with county treasurers from across the state to keep them abreast of sales tax issues, one of them being buyers and sellers undervaluing vehicles.
"There’s been so much fraud with sales tax that the state met with us to tell us how to deal with the problem a little better. Going by the fair market value works, and then people can work with the state — we’re not the ones trying to appraise the vehicle,” Nelson said. “We collect on the (NADA) rough trade-in, which is considerably lower than the average cost, so we’re trying to help people that way too."
The purpose of this process is to halt sales tax fraud on vehicles and has been a part of the Kansas Department of Revenue administrative regulations since 1970, with the most recent amendment made in 1998.
"They’re not trying to get everybody, they’re trying to stop the people continually listing that they bought cars for $200 when they’re worth much more. We see the same people do it all the time, so the state is trying to stop that,” Nelson said. “They don’t want to overcharge people on every sale, they want to stop people who are understating the price. We see buyers and sellers getting together to say that they sold it for $500 when they actually paid $6,500.”
Last year, the Kansas sales tax department collected over $300,000 in evaded sales tax. This amount also includes people who are taxing their titles in other states that don’t have sales tax, such as Montana.
"Really, you’re hurting your own county and community when you do that because each county needs that tax money to run. If you title your vehicles in another state, our county still has to come up with the money to run,” Nelson said.
The process weeds out legitimate sales from cases of fraud. If an elderly person quits driving and wants to sell their vehicle at a low cost to a young family friend just starting the drive, the price would be technically understated, but it would be determined as the legitimate sale price through the refund process.
The issue of sales tax on vehicles is handled by the Kansas Division of Taxation within the Kansas Department of Revenue.
For more information, visit https://www.ksrevenue.org/taxcontact.html.
To read the statute in full, visit http://rvpolicy.kdor.ks.gov/Pilots/Ntrntpil/IPILv1x0.NSF/ae2ee39f774805525655b004e9335/83114b91e00d7c7f8625663200653c19
Contact Cheyenne Derksen Schroeder by email at email@example.com or follow her on Twitter at @MacSentinel.