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Originally Posted by X5 Guy
Not sure this is true. What state do you live in?
The dealer is going to apply your trade-in as a "down payment" and the taxes will be calculated from the full retail amount of the vehicle.
The state is going to lose money and would NEVER permit that to happen. Many people used to sell a car for $1.00 but it was actually worth $30,000 thus keeping the tax payment low for the buyer.
Now most states if not all... calculate the tax on the sale price or the true value of the car, which ever is greater.
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Not in Louisiana, I also doubt most states do this...its called double taxation. You have already paid sales tax on the first vehicle.
EDIT:
Actually looks like MOST states DO ALLOW this to happen, as I originally stated:
http://www.michigan.gov/documents/485_72279_7.pdf
http://www.safecarguide.com/gui/old/disposing.htm
http://www.window.state.tx.us/taxinf.../tx96_116.html
the list goes on...just try google.
looks like Virginia is one of the few states that does not do this, but its likely because you only pay 3% tax whereas most states charge 7-9%