When purchasing or selling used vehicles (including motorcycles) in Pennsylvania, many taxpayers are unaware that additional sales tax may be due in cases where a vehicle’s purchase price is significantly lower than fair market value. In most cases, the purchase price and fair market value will be similar. However, when a purchase price is set considerably lower than fair market value, the PA Department of Revenue has the authority to review the transaction to determine and collect the correct amount of sales tax due [see 72 Pennsylvania Statutes § 7201(g)(3)].
The department’s Motor Vehicle Understated Value Program is a partnership between the Pennsylvania Department of Revenue and the Department of Transportation that addresses situations where an automobile buyer or seller knowingly understates the purchase price of a vehicle in order to reduce the sales tax liability on the sale. To prevent such tax evasion, the Department of Revenue routinely reviews automobile purchases where the reported purchase price is substantially lower than fair market value and requests verification of and basis for the reduced purchase price. If the buyer is unable to provide sufficient verification for the lower purchase price, the buyer is assessed sales tax based on the fair market value.
Inquiries about the program or questions about Motor Vehicle Understated Value Program correspondence may be directed to 717-214-7287 (Option 4).