Buying Advice Out of State Sales Tax Confusion

[IndyJay]

States with low income taxes, for example, may have lousy public schools, meaning you have to pay for private schools.

Many of the states with highest taxes and most money spent per student have some of the worse school systems.

 

[Torvy]

Tell your FIL to get more data points. I have lived in 4 states as an adult. My experience says he is dead wrong. Besides, we were discussing PA vs TX taxes, not MI.

A gallon of gas has an additional 38.7 cents a gallon tax in PA than TX. 25.12 cents more in MI than TX. Using a modest 15k miles per year and 20 mpg, that is over $188 a year in additional gas taxes in MI and $290 more in PA.

Using median incomes for each state and the IRS standard sales tax deduction rate of 17% of gross income and the median property taxes for each of these states, grand total is Michigan with a tax burden of 8.57%. Pennsylvania with a tax burden of 7.82% and Texas with a tax burden of 4.64%. This is an annual difference of $2671.54 comparing TX and MI. More interestingly, the median Texan earns a whopping $11,531.54 more after these taxes than the average Michigander. Even adjusted for a lower cost of living in Michigan, that would be $8293.61 more per year for the median Texan. Gotta say it...Don't mess with Texas.

 

[zoedog2012]

My FIL had a place in Texas. His message was that, when you look at all the taxes and use fees, it’s about a wash between Texas and his other home in Michigan.

When comparing, you can cherry pick to make one look better or worse, but all in, it takes money to support roadies, fire departments, police, water and sewer systems, and school systems.

States with low income taxes, for example, may have lousy public schools, meaning you have to pay for private schools.

It’s largely a wash.

Just saying...

All states have lousy public schools!

 

[IndyJay]

All states have lousy public schools!

The public schools in my county in Indiana are excellent. True also of the surrounding counties. It has more to do with parent involvement as it does dollars spent.

 

[DB Pilot]

My last new tractor (2020) was supposed to be a Kubota M series. But the Dealer in PA (23 miles away) said I had to pay sales tax even if he delivered it to me in NY. I don't know if it's true but I think he also said that he would then transfer that tax money to NY. I'm happy with my Case 65A purchase locally, in state, 6 miles away. I just figured if I can't get out of paying taxes might as well go for the closer dealer.

Lets see I paid my income tax (Fed., state and local), school tax, property tax, car registration, trailer reg. and license's, fuel plus tax on every thing I purchase. You'd think enough was enough. Guess government never heard the term "double dipping', but I think they have.

 

[IndyJay]

Lets see I paid my income tax (Fed., state and local), school tax, property tax, car registration, trailer reg. and license's, fuel plus tax on every thing I purchase. You'd think enough was enough. Guess government never heard the term "double dipping', but I think they have.

But did you pay your "fair share"?

 

[hornett22]

Tell your FIL to get more data points. I have lived in 4 states as an adult. My experience says he is dead wrong. Besides, we were discussing PA vs TX taxes, not MI.

A gallon of gas has an additional 38.7 cents a gallon tax in PA than TX. 25.12 cents more in MI than TX. Using a modest 15k miles per year and 20 mpg, that is over $188 a year in additional gas taxes in MI and $290 more in PA.

Using median incomes for each state and the IRS standard sales tax deduction rate of 17% of gross income and the median property taxes for each of these states, grand total is Michigan with a tax burden of 8.57%. Pennsylvania with a tax burden of 7.82% and Texas with a tax burden of 4.64%. This is an annual difference of $2671.54 comparing TX and MI. More interestingly, the median Texan earns a whopping $11,531.54 more after these taxes than the average Michigander. Even adjusted for a lower cost of living in Michigan, that would be $8293.61 more per year for the median Texan. Gotta say it...Don't mess with Texas.

Plus there's the savings of your vehicle not rusting out.

 

[jyoutz]

I'm ready to purchase another new tractor from a dealer in PA, I live 150 miles away in MD. We are relatively close on pricing, but I'm now told that if I pick the tractor up there (which I'm ready to do) , I have to pay PA sales tax (even through I'm a MD resident). They further state that If they deliver it to me (~$800) then I have to pay MD sales tax. Does that sound right? has something changed recently?

If I pick the tractor up in PA and pay their sales tax, I may also be liable for my own state's tax when reporting my 2020 Fed/state taxes and effectively pay 2x the sales tax.

I've purchased many vehicles, tractors, etc. out of state, and worst case on a 'registered/tagged' vehicle they collect MD sales tax and remit on my behalf to my state. Best case, on an item that is not 'registered', they collect zero tax.

??

thanks

I think this varies by state. I live in NM and recently purchased a tractor in southern, Colorado close to the state line. I was told that because I’m not a CO resident, they couldn’t charge me any sales tax. I was also looking at a local dealer and would have to pay a 7% sales tax. I didn’t buy locally because they didn’t have the tractor model I wanted in stock. I also checked with a dealer in TX and was told that I would have to pay sales tax even if I wasn’t a TX resident. So very confusing. Since I bought with the CO dealer, I paid no tax. I also bought a vehicle in CO a few years ago and paid no CO tax, but did pay NM tax when I registered the vehicle license. Because tractors aren’t registered, I don’t know how I would even pay NM sales tax.

 

[jyoutz]

Plus there's the savings of your vehicle not rusting out.

Texas is known to get their revenue in different ways, but they still collect a lot of funds from residents. They have a lot of various user fees and very high property taxes and also local sales tax is far higher than my state. Also, many of their roads are toll roads.

 

[jyoutz]

All states have lousy public schools!

Not true. It varies by school district.

 

[arto98607]

..................snip................... Because tractors aren’t registered, I don’t know how I would even pay NM sales tax.

It's called use tax when buying out of state & not taxed.
Sorry it does not hep even if you don't know how to pay - it's up to the resident to find the state tax office.

It's not easy for your own state to catch you but it can happen.

It happened to me some 15 years ago (cash purchase of a tractor from a JD dealer) and I suppose I was lucky since there was no fine or penalty, just a semi-friendly reminder letter from my own state!

 

[lman]

My last new tractor (2020) was supposed to be a Kubota M series. But the Dealer in PA (23 miles away) said I had to pay sales tax even if he delivered it to me in NY. I don't know if it's true but I think he also said that he would then transfer that tax money to NY. I'm happy with my Case 65A purchase locally, in state, 6 miles away. I just figured if I can't get out of paying taxes might as well go for the closer dealer.

Lets see I paid my income tax (Fed., state and local), school tax, property tax, car registration, trailer reg. and license's, fuel plus tax on every thing I purchase. You'd think enough was enough. Guess government never heard the term "double dipping', but I think they have.

It looks like you've got a few acres. I would find a couple calves and claim an ag exemption.

 

[jyoutz]

It's called use tax when buying out of state & not taxed.
Sorry it does not hep even if you don't know how to pay - it's up to the resident to find the state tax office.

It's not easy for your own state to catch you but it can happen.

It happened to me some 15 years ago (cash purchase of a tractor from a JD dealer) and I suppose I was lucky since there was no fine or penalty, just a semi-friendly reminder letter from my own state!

Bought my last tractor 21 years ago out of state when I lived in AZ. Still haven’t heard from the state tax people. No doubt that budget cuts have reduced the ability of state tax people to chase those kinds of things.

 

[Threepoint]

It's called use tax when buying out of state & not taxed.
Sorry it does not hep even if you don't know how to pay - it's up to the resident to find the state tax office.

It's not easy for your own state to catch you but it can happen.

It happened to me some 15 years ago (cash purchase of a tractor from a JD dealer) and I suppose I was lucky since there was no fine or penalty, just a semi-friendly reminder letter from my own state!

I'm late to this thread, but I'll add what I know.

Times have changed. In this digital age, it is surprisingly easy for state revenuers to identify and track out-of-state purchases of big-ticket items, and to identify non-compliance with use tax requirements. In fact, with budgeting squeezes, there is more incentive, not less, to target high value purchases like tractors, equipment, and even spendy tractor implements. Interstate shipping companies, manufacturers and established equipment dealers who routinely do business across state lines can and do share sales and shipping manifest information with state tax authorities in neighboring and destination states. This, being much less disruptive than trying to deal with requests to audit their sales and shipping records. Also, even neighboring states themselves have a common interest in cooperating with each other to reduce non-compliance with their respective use-tax laws.

The last time I checked, virtually every state in the U.S. that has a sales tax also has a use tax on out-of-state purchases of goods. The use tax is almost always equal to the rate of sales tax, reduced in each case by a credit of any sales tax actually paid to the state where the goods were purchased. The resident taxpayer is expected, and legally required, to declare the out-of-state purchase at the time that he/she files his/her annual state income tax return. That's why the popular tax-preparation software programs all have a question asking about out-of-state purchases of goods as you work your way through the program.

 

[ning]

As far as I know, a "use tax" is a tax levied on the users of a resource. A bridge toll is one of the more obvious examples - the only people who pay the tax are those who use the bridge.

Gas tax is supposed to be a use tax (for road & highway infrastructure) but in practice it often is used to fund non-highway items too, and the payers aren't always users of the highway system (eg for chainsaw fuel or arson ignition materials).

Paying your residential state's tax on purchases made out of that state isn't a use tax as such and really isn't any different than paying a tax on the locally purchased item as the tax is levied for the same purpose and funds the same thing.

 

[m1garand762]

Who pays taxes for a tractor? Sign a blanket exemption if you feel guilty. Anywhere I buy tractors or parts doesn’t even give you the option it’s all tax free if you feel guilty plant a few trees and claim tree farm

 

[Torvy]

As far as I know, a "use tax" is a tax levied on the users of a resource. A bridge toll is one of the more obvious examples - the only people who pay the tax are those who use the bridge.

Gas tax is supposed to be a use tax (for road & highway infrastructure) but in practice it often is used to fund non-highway items too, and the payers aren't always users of the highway system (eg for chainsaw fuel or arson ignition materials).

Paying your residential state's tax on purchases made out of that state isn't a use tax as such and really isn't any different than paying a tax on the locally purchased item as the tax is levied for the same purpose and funds the same thing.

Glad we can help share knowledge here...see attached

https://www.investopedia.com/terms/u/use-tax.asp

 

[Menagerie-Manor]

My last new tractor (2020) was supposed to be a Kubota M series. But the Dealer in PA (23 miles away) said I had to pay sales tax even if he delivered it to me in NY. I don't know if it's true but I think he also said that he would then transfer that tax money to NY. I'm happy with my Case 65A purchase locally, in state, 6 miles away. I just figured if I can't get out of paying taxes might as well go for the closer dealer.

Lets see I paid my income tax (Fed., state and local), school tax, property tax, car registration, trailer reg. and license's, fuel plus tax on every thing I purchase. You'd think enough was enough. Guess government never heard the term "double dipping', but I think they have.

After leaving the NY/NJ region I was blown away when I found out that trailers under 1500lbs gross are not required to be registered here, what a great concept.

 

[Threepoint]

Glad we can help share knowledge here...see attached

https://www.investopedia.com/terms/u/use-tax.asp

That Investopedia write up is a good treatment of state use tax as of mid 2018, and still is for the most part. Interestingly, though, the longstanding concept of what constitutes a taxable "nexus" for sales tax purposes was modified big time in June 2018 by the U.S. Supreme Court in South Dakota v. Wayfair, et. al. Here's a Wikipedia article on that case.

south dakota v wayfair - Bing

Intelligent search from Bing makes it easier to quickly find what you’re looking for and rewards you.

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Since then, more and more states have passed laws requiring large out-of-state online sellers to collect and remit sales tax on their behalf. For purchases where that's done, the resident state's use tax is no longer triggered. For non-online purchases from, say, an out-of-state equipment dealer with no conventional tax presence in the buyer's state, the buyer's use tax liability is still very real.

Unfortunately, there are some salesmen who will pitch a sale by saying they'll deliver the tractor and save the out-of-state buyer sales tax. Knowing full well that the buyer will likely owe use tax in his home state in the absence of an ag exemption.

 

[jyoutz]

Glad we can help share knowledge here...see attached

https://www.investopedia.com/terms/u/use-tax.asp

It looks like I got a bonus by buying out of state. See what I learned:

New Mexico is one of a handful of states (like Arizona, Hawaii, and Illinois) that do not have typical, transaction-based sales & use taxes. Instead, they have a Gross Receipts Tax (GRT) which is levied on the seller (instead of the purchaser) for the privilege of doing business within the state.