Purchasing a car in New Jersey involves more than just the sticker price. Understanding the New Jersey Sales Tax Cars is a crucial part of the buying process, whether you’re heading to a dealership or buying from a private seller. This guide answers frequently asked questions to help you navigate the New Jersey car sales tax landscape with confidence.
Understanding New Jersey Car Sales Tax Basics
What is the current sales tax rate for cars in New Jersey?
As of January 1, 2018, the sales tax rate in New Jersey for motor vehicles is 6.625%. This percentage applies to the taxable purchase price of both new and used vehicles.
Why am I receiving a sales tax inquiry notice even after dealing with the Motor Vehicle Commission (MVC)?
Even if you’ve provided information to the MVC, the New Jersey Division of Taxation is legally required to independently verify that the correct sales tax amount has been paid based on the actual purchase price. This is a separate process to ensure compliance. If you claimed a sales tax exemption, the Division of Taxation must also validate that no sales tax was indeed due.
Is it mandatory to complete the Purchaser’s Affidavit and potentially the Seller’s Affidavit when responding to a sales tax notice?
Yes, completing the Purchaser’s Affidavit is always required when you respond to a sales tax questionnaire related to a vehicle purchase. Depending on the nature of the vehicle transfer, you may also need the Seller’s Affidavit completed. These affidavits provide necessary details about the transaction for the Division of Taxation to accurately assess the sales tax.
What are the consequences of not responding to a New Jersey car sales tax notice?
Ignoring a sales tax notice can lead to negative consequences. If you fail to respond, the New Jersey Division of Taxation has the authority to assess sales tax based on the vehicle’s estimated value. This valuation is typically derived from data provided by the National Automobile Dealers Association (N.A.D.A.), which may not reflect the actual price you paid, potentially leading to a higher tax liability.
Why would I receive a second sales tax notice for the same car purchase?
Receiving a second notice usually indicates that the Division of Taxation did not receive a response to the initial notice. If you believe you’ve already responded to the first notice for the same transaction, it’s important to contact the Division of Taxation’s Casual Sales Unit immediately via email at [email protected] to clarify the situation and prevent any further action.
How can I check the status of my submitted paperwork in response to a sales tax notice?
To inquire about the status of documents you’ve mailed to the Division of Taxation in response to a sales tax notice, you can contact their Casual Sales Unit directly via email at [email protected]. Remember to have your case details ready for efficient follow-up.
Important Security Note Regarding Email Communication: Be aware that email communication with the New Jersey Division of Taxation regarding sales tax inquiries is not secure. Do not include sensitive personal information such as Social Security numbers, Federal Tax Identification numbers, dates of birth, or bank account details in your emails. Similarly, avoid attaching documents containing confidential information to your emails to protect your privacy.
Will I receive confirmation that my documents are sufficient and no further sales tax is required?
The New Jersey Division of Taxation will notify you if they require additional documentation to complete their review of your car sales tax account. If your submitted documentation is deemed complete and no further sales tax is due, you can request a “closed inquiry letter” as confirmation for your records.
Sales Tax on Car Gifts and Inheritances in New Jersey
What are the sales tax implications if a car is given as a gift?
If you receive a vehicle as a gift in New Jersey, you’ll need to complete the sales tax questionnaire. For gift transfers, the donor (person giving the gift) should also complete the Seller’s Affidavit.
Sales Tax on Gifted Cars with No Liens:
If the gifted vehicle is free and clear of any liens (loans), and you check the appropriate box on the questionnaire and the donor completes the Seller’s Affidavit, typically no sales tax is due in New Jersey. However, it’s important to be aware that receiving a car as a gift might have implications for your federal income tax liability, which is separate from state sales tax.
Sales Tax on Gifted Cars with Existing Liens:
The sales tax situation becomes more nuanced if the gifted car comes with a lien (outstanding loan).
- Co-owner Exception: If you were already a co-owner on the original vehicle title and the car is gifted to you while assuming the lien, then generally no sales tax is due in New Jersey. You’ll need to indicate this on the questionnaire and provide a copy of the original title as proof.
- Assuming a Lien as a New Owner: If you were not a co-owner on the original title and you receive the vehicle as a gift while assuming the outstanding loan balance, New Jersey sales tax is due on the principal loan amount you assume. For example, if you assume a $5,000 loan balance, you would owe 6.625% sales tax on that $5,000 (which would be $331.25). In this case, you must pay the sales tax and submit a copy of the loan assumption paperwork from your lending institution to verify the assumed loan balance.
For questions regarding federal gift tax implications of receiving a vehicle as a gift, it’s best to contact the IRS directly at 1-800-829-1040.
What documentation is needed if the donor of a gifted vehicle is deceased?
If you received a car as a gift from someone who is now deceased, you should still complete the Purchaser’s Affidavit on the sales tax questionnaire. Additionally, the executor of the deceased donor’s estate should complete the Seller’s Affidavit on behalf of the deceased. To validate the executor’s authority, you’ll need to provide a copy of their surrogate certificate (proof of appointment as executor) and the donor’s death certificate.
What if a car is left to me in a will? Are there sales tax implications?
If you inherit a vehicle through a will, you should indicate “Gift” on the sales tax questionnaire, complete the Purchaser’s Affidavit, and include a copy of the will when you respond. Similar to gifted vehicles with liens, if there’s an outstanding loan on the inherited vehicle that you assume, sales tax will be due on the principal loan amount assumed.
Sales Tax on Car Trades and Barters in New Jersey
Is sales tax due if I trade goods or services for a vehicle instead of paying cash?
Yes. In New Jersey, sales tax applies even if you exchange goods, services, or anything of value (barter) for a vehicle, rather than making a direct monetary payment. Such transactions are not considered gifts under sales tax law, and you will be required to pay sales tax on the vehicle’s fair market value.
It’s also important to note that you might need to report barter transactions on your individual and/or business tax returns, regardless of whether any money changed hands for the vehicle transfer.
Is swapping vehicles with another private party considered a taxable transaction in New Jersey?
Yes, vehicle swaps between private individuals are taxable in New Jersey. The sales tax is calculated based on the fair market value of the vehicle you are acquiring in the swap. Essentially, trading anything of value for a car triggers sales tax.
Examples of Taxable Vehicle Swaps:
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Example 1: Boat for Car Swap: Someone trades a boat valued at $25,000 for a 2015 Honda CR-V. This is a taxable transaction. The sales tax is based on the fair market value of the Honda CR-V, which, given the boat’s value, is determined to be $25,000. The sales tax due would be $25,000 x 6.625% = $1,656.25.
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Example 2: Car and Cash for Car Swap: An individual trades a 2014 Jeep Grand Cherokee and $1,000 cash for a 2013 Ford F-150. Sales tax is due on the combined value of the 2014 Jeep Grand Cherokee’s fair market value and the $1,000 cash given.
Proving Vehicle Value and Purchase Price for Sales Tax Purposes
What if I purchased a car in poor condition for less than the N.A.D.A. value? How do I prove this to reduce my sales tax?
If you bought a vehicle for a price lower than the National Automobile Dealers Association (N.A.D.A.) value because of its condition, you can submit evidence to support the lower purchase price. Acceptable documentation includes:
- Copies of repair bills
- Repair estimates
- Accident reports
- Photographs showing the vehicle’s condition
Along with this documentation, you must complete the Questionnaire and Purchaser’s Affidavit. Having the seller complete the Seller’s Affidavit to confirm the actual purchase price can also strengthen your case.
What if I registered a vehicle with an incorrect purchase price but paid less than the N.A.D.A. value listed in the sales tax notice?
If you initially reported an incorrect purchase price when registering your vehicle but the actual price paid was lower than the N.A.D.A. value stated in the notice, you should have the seller complete a Seller’s Affidavit with the correct purchase price. If you cannot reach the seller, submit a letter explaining the correct purchase price and any available documentation verifying the price, along with the completed Questionnaire and Purchaser’s Affidavit. The Division of Taxation will review your information, and if additional tax is still deemed due, they will send you a Notice of Adjustment.
How can I prove the cash purchase price of a vehicle if I don’t have a receipt?
If you paid cash for a vehicle and lack a receipt, you can provide alternative proof of purchase price. A copy of your bank statement showing the cash withdrawal for the purchase can serve as supporting documentation. Additionally, obtaining a completed Seller’s Affidavit from the seller and submitting it with your Questionnaire and Purchaser’s Certification is helpful. However, without sufficient proof of the actual purchase price, the Division of Taxation may assess sales tax based on the N.A.D.A. vehicle valuation.
What should I do if I cannot locate the seller to obtain a Seller’s Affidavit?
If you are unable to locate the seller to get a Seller’s Affidavit, you should include any available proof of purchase price, such as a copy of a cash receipt, canceled check, or money order. Also, provide a detailed letter explaining your efforts to contact the seller, including the seller’s name and any contact information you have. The Division of Taxation will review your situation. However, similar to cash purchases without receipts, if you cannot provide acceptable proof of the vehicle’s purchase price, sales tax assessment may be based on the N.A.D.A. value.
Sales Tax Exemptions and Specific Transaction Types
Is transferring a vehicle from my personal name to my sole proprietorship business taxable?
No. As a sole proprietor, transferring a vehicle title from your name to your business name is generally not subject to additional sales tax in New Jersey. To document this type of transfer, complete the Questionnaire and Affidavit and attach any supporting documentation confirming the transfer to your sole proprietorship.
What documents are needed when purchasing a vehicle from a leasing company at the end of a lease?
When buying a vehicle from a leasing company at the end of your lease period, you should submit a copy of the lease purchase agreement. This agreement should clearly show the buyout price and the amount of sales tax already paid by the lessee (the person who leased the vehicle) during the lease term.
Is transferring a vehicle from my corporation to myself taxable?
Yes, generally, transferring a vehicle from a corporation to an individual is a taxable transaction in New Jersey if any payment, barter, exchange, or service is involved. This type of transfer is not considered a gift for sales tax purposes, and sales tax is due on the vehicle’s fair market value. If there is a lien on the vehicle that you assume personally, sales tax is due on the assumed loan amount.
Exception for Corporate Dissolution: No sales tax is due if the corporation was dissolved before the vehicle transfer and the vehicle was transferred to you as a stockholder as part of a corporate liquidation dividend. In this specific case, you must submit a copy of the tax clearance certificate for the dissolved corporation to prove the exemption.
Important Note on Income Tax for Corporate Transfers: Similar to barter transactions, be aware that vehicle transfers between a corporation and an individual may have income tax reporting requirements for both the individual and the business, regardless of whether any payment was made for the vehicle. For questions about federal gift tax implications related to corporate vehicle transfers, contact the IRS at 1-800-829-1040.
Obtaining Proof of Sales Tax Paid to a Dealer
How can I get proof of sales tax paid to a car dealership when I originally purchased the vehicle?
Proof of sales tax paid to a dealership should be included in the documentation you received from the dealer when you bought the vehicle. If you cannot locate these documents, you can request a Title Search (Form DO-22) from the New Jersey Motor Vehicle Commission. There is a $15 fee for this service. The Title Search will provide you with confirmation of sales tax paid, along with other vehicle information. You can obtain Form DO-22 by calling the MVC at (609) 292-6500 or download and print the form from the MVC website.
