When purchasing or selling used vehicles (including motorcycles) in Pennsylvania, many taxpayers are unaware that sales tax due to the Department of Revenue is a percentage of the fair market value of a vehicle, rather than a percentage of the purchase price. When a purchase price is set considerably lower than fair market value – as often happens in transactions between family members – the PA Department of Revenue has the authority to review the transaction to determine and collect the correct amount of sales tax due.
The department’s Motor Vehicle Understated Value Program debuted in 2001 as a partnership between the Pennsylvania Departments of Revenue and Transportation (PennDOT). The program addresses situations where an automobile buyer or seller knowingly understates the purchase price of a vehicle in order to reduce sales tax paid on the sale. Pennsylvania law allows Revenue to assess sales tax based on the fair market value of the vehicle when there is reason to believe the purchase price does not reflect the true value of the vehicle [see 72 Pennsylvania Statutes § 7201(g)(3)].
Inquiries about the program or questions about Motor Vehicle Understated Value Program correspondence may be directed to (717) 214-7287 (option 4).
