Paying taxes on these cars

[Joe Wicked]

I have read that if you show receipts for taxes paid for parts during building you don't have to pay taxes, but what are the taxes you have to pay if you don't have those. For example, lets say I win the LCS raffle this coming weekend and I bring the car here to Texas or I find a killer deal I can't pass up and bring the car here. How much would I be paying for the taxes. I have been able to find that it is based on the value of the car not what I paid for it, but not a % of what that is. So if I had a car that had a $30K value, would I be expecting to pay $1000, $3000, $5000, etc...

Thanks for any input.

[Stoney FFR]

I don't know the full answer to your question without doing some research, but I think you would probably want to focus on how much Income Tax you would have to pay to the IRS.. The amount probably depends on your personal tax situation.

As far as the amount of tax you pay to the State of Texas for a car that you built, that is questionable too. Some have managed to not pay any tax, others have paid tax only on the kit and/or parts that were ordered online. It all depends on the sub-courthouse and the person at the window that you walk up to.

Good luck on winning the car!

[Joe Wicked]

That does help answer as far as the raffle winning. Any idea on how all that works? I did not think about that. Gotta love all the hidden costs.

[madmaxx]

Simple, the first time a car is registered, zero taxes, the second and each subsequent title 6.25%. When GM and Ford sell cars they dont pay taxes, the second owner you pays the taxes when you buy.

[Z-linkCobra]

The sales tax rate for autos in Texas is currently 6.25%. If the car is valued at 30 grand then you can expect to pay 1875.00 in taxes. So if you dont have the reciepts where you bought the parts and paid taxes then you will have to have the appraised and pay taxes based on its appraised value. If you win one in a raffle than you can expect to get a 1099 for the value and you have to pay the taxes as net income. You will also be liable for sale tax when you register the car. Generaly speaking the raffle will cover the sales tax...but not always.

[Joe Wicked]

So in the case of winning the raffle, I would have to pay the title tax if it already has a title and I need to transfer it, plus registration fees and what ever the IRS charges, if I buy one the title tax plus registration fees and if I build the car no taxes initially just registration fees. Does anybody know how the taxes work for the IRS if I were to win one in a raffle?

[Stoney FFR]

Originally Posted by madmaxx

Simple, the first time a car is registered, zero taxes, the second and each subsequent title 6.25%. When GM and Ford sell cars they dont pay taxes, the second owner you pays the taxes when you buy.

I tried that approach and it didn't work in Johnson County.. I didn't want to play the game, so I just paid the tax and walked out with my car titled and registered. I considered myself lucky at the time that I wasn't going to have to deal with emmisions and figured they could really make my life miserable it they wanted to.

[Joe Wicked]

Thanks guys. I appreciate the replies. Obviously hoping to win this weekend as it will still cost a lot less than building or buying, but this whole thing has got me all wrapped up again trying to figure a way to get it done. One of these days my planning out everything will work.

[A-Snake]

Originally Posted by Joe Wicked

Thanks guys. I appreciate the replies. Obviously hoping to win this weekend as it will still cost a lot less than building or buying, but this whole thing has got me all wrapped up again trying to figure a way to get it done. One of these days my planning out everything will work.

I might add that in many if not most cases, the charity raffle will require a payment from the winner of 20% of the value as a withholding for the IRS.

[ZOERA-SC7XX]

If you're banking on 'winning' a Cobra in a raffle, you're dreaming. Lottery players spend thousands each year and don't win a thing (and if they do, it's a fraction of what they spend). Get real, and get to work, because the only way you're gonna get a Cobra (if you don't already have the cash) is hard work. As far as taxes go, just pay up in the beginning so you don't have to worry about somebody knocking on your door or confiscating your cars. The IRS taxes any 'winnings' as income, and you know what that's about. Don't forget property tax, which many states or cities tax your car on its perceived value every year. This is in addition to state sales tax, which you pay when you register your car. Good luck.

[crASH]

Joe-

Man, you must have bought more of these LCS raffle tickets than me. But I digress. I remember the first time I bought a stack of raffle tickets for a car I asked these same questions. Raffle winnings fall under the category of legal gambling winnings with the IRS, if I recall correctly.

In fact, it is the responsibility of the raffle holder to handle the withholdings with the IRS if I recall, but I have learned that NONE ever do this, and if you read the fine print of any car raffle rules, and the LCS raffle follows this, it will say that you, and you alone are responsible for all taxes, tags, licenses, witholdings of your firstborn, forfeiture of your spouse, anything and everything.

I think that at the end of the day, if you win a $40,000 car, you will be responsible to the IRS for the income tax associated with whatever impact that 40K has on your overall tax picture for 2011. I can't speak to Texas tax laws since I live in NC, but I understand that ya'll have no state income tax (and it's a beautiful thing, too)

Disclaimer: I am NOT a tax, or legal professional.

"crASH"

[madmaxx]

You and them broke the law, it aint a game. It is clearly written, in fact do a search on this forumn. I registered in Harris County, Houston, you think they play games. total cost was $181

As far as the raffle, who knows

Originally Posted by Stoney FFR

I tried that approach and it didn't work in Johnson County.. I didn't want to play the game, so I just paid the tax and walked out with my car titled and registered. I considered myself lucky at the time that I wasn't going to have to deal with emmisions and figured they could really make my life miserable it they wanted to.

[crASH]

Originally Posted by A-Snake

I might add that in many if not most cases, the charity raffle will require a payment from the winner of 20% of the value as a withholding for the IRS.

I think A-Snake is correct in this, but in the last three Cobra raffles that I have bought tickets for, no one did this. The good news is that worst case, even if you DO have to withhold 20%, that doesn't mean that you will actually owe 20% in income tax at the end of the year. It boils down to whatever your total income tax picture looks like for the year, plus the value of the car (let's say 30K) to your income picture.

[elmariachi]

Originally Posted by madmaxx

Simple, the first time a car is registered, zero taxes, the second and each subsequent title 6.25%. When GM and Ford sell cars they dont pay taxes, the second owner you pays the taxes when you buy.

First of all, GM and Ford are recognized by the State's taxing authrity as manufacturers, not owners. The guy who buys the new Ford truck is the first owner and he must pay sales tax in Texas. In Joe's case, if the guys who built the LCS raffle car hand him the FFR MSO, he has a decision to make about what he represents to the local tag agency.

Go here and read the sections entitled "Awards/Prizes" and "Tickets."

Motor Vehicle Manual

You're gonna pay some sales tax on that car. And if the folks at LCS do it right and report your winnings to the IRS, you are going to pay some income tax (at your withholding rate):

http://www.irs.gov/pub/irs-tege/notice_1340.pdf

Edit>> On the subject of what you pay when you buy a car cheap from out of state and bring it here, Standard Presumptive Value Applies:

Standard Presumptive Value

[BMK]

Solved the problem for you guys.

I will come over and run down the main street and then take the winning car home.

No tax problems for any one..

I have not seen the car this year but previous cars have been great. I watched the draw one year and the happy winner could not get the smile off his face - nearly as big of a smile as the Police Chief in his golf kart..

Have fun at LCS

[Joe Wicked]

Originally Posted by ZOERA-SC7XX

If you're banking on 'winning' a Cobra in a raffle, you're dreaming. Lottery players spend thousands each year and don't win a thing (and if they do, it's a fraction of what they spend). Get real, and get to work, because the only way you're gonna get a Cobra (if you don't already have the cash) is hard work.

I am not "banking" on winning a Cobra. I happened to buy some tickets to support the charity, but on the off chance I do win, I was curious. I have been working hard at saving money for one, but life has thrown a few curve balls at me. That is also why I asked about finding an awesome deal out of state. I actually did find one that I almost could afford that needed some work to get it running again. Depending on how things go, I think I may be able to afford one within the next year or 2.

[Joe Wicked]

Originally Posted by crASH

Joe-

Man, you must have bought more of these LCS raffle tickets than me.

Na I doubt it. I didn't buy a lot. But hey only need the winning 1 right? I was just thinking about the winning and how much money I would have to have, it would suck to win the car and have to sell it to be able to pay the taxes. I would not be a happy camper to say the least. Just the whole raffle thing got me thinking and wondering how it all worked so I asked.

[mpanten]

My neighbor won a mustang in a raffle, in Ohio, which is probably where you would pay the tax since the LCS is in Ohio. He paid taxes on 10 dollars which was the price of the ticket. Im not saying this is how it goes normally, just what happend to him.

[crASH]

Originally Posted by Joe Wicked

I was just thinking about the winning and how much money I would have to have, it would suck to win the car and have to sell it to be able to pay the taxes. I would not be a happy camper to say the least. Just the whole raffle thing got me thinking and wondering how it all worked so I asked.

I am with you on this bro. I bought some tickets last year for a Lone Star Cobra that was raffled in your fair state, and regardless of how long the odds are of winning I went through these same mental gymnastics. The thought of stroking a check for $10K in advance just to cover Federal withholdings tends to dampen the excitement. I think there are probably some different ways to skin that cat and still get square with the IRS in the end.

[Stoney FFR]

Originally Posted by madmaxx

You and them broke the law, it aint a game. It is clearly written, in fact do a search on this forumn. I registered in Harris County, Houston, you think they play games. total cost was $181

As far as the raffle, who knows

I have seen your numerous posts over the past few years talking about not paying sales tax. I'm seriously happy that you and a few others have been able to save the money and also enjoy reading all of the posts.


The whole point of my original post was that different courthouses deal with our cars in different ways. When it comes down to it, it all just depends on the decisions they make and there will likely be little you can do to change their minds. I feel certain that if you ask other kit builders around the state you will find that most DO pay sales tax. "Playing a game" was only a figure of speech. I didn't want to get into an argument with the people at my local sub-courthouse. As it is, I diplomatically reasoned with two different employees and one of them made a phone call to a regional supervisior about my car. Once the final decision was made, I decided to pay the tax and walk out with my vehicle registered and titled. I didn't have to go back and fill out more forms, didn't have to have it inspected by a police officer, didn't need pencil tracings, didn't even need a photograph of my car, didn't have to come back next week and see someone else, etc...

I would be curious exactly where you find that it says a person that assembles a KIT doesn't have to pay sales tax? A KIT is not a HOME-MADE vehicle. The law that I have read says that a HOME-MADE vehicle is not subject to tax. But it also says a KIT is not a HOME-MADE vehicle. It would be very difficult to say that a Factory Five Racing vehicle is not a KIT, since FFR openly states they sell KITS.. Additionally, FFR issues MSO's, so that clearly is an indication that it's a KIT under their definition and not HOME-MADE or SHOP-MADE

Here is the text from one of the above links to a state website.

Motor Vehicle Manual

================================================== =====

Home-Made Vehicle

A home-made or shop-made vehicle is a motor vehicle built from scratch using component parts.

A motor vehicle that has been restored or reconditioned for operable use is not a shop-made or home-made vehicle.

A motor vehicle that is purchased unassembled in a kit is not a home-made vehicle.

A home-made or shop-made vehicle will not have a Manufacturer's Statement of Origin (MSO).

Taxability

Motor vehicle tax is not due upon the initial titling or registration of a home-made or shop-made vehicle by the manufacturer or individual who actually built the motor vehicle.

Once the vehicle has been titled or registered by the person who built it, motor vehicle tax is due on all subsequent sales.

Motor vehicle tax is due from the person who custom orders a motor vehicle to be built since someone else is the actual builder.

However, motor vehicle tax is not due when an individual makes separate purchases of component parts and then hires another person to assemble them into a motor vehicle.

NOTE:
All component parts purchased to construct or restore a motor vehicle are subject to Limited sales and use tax.