Is the US government breaking the tax law?

Question

Please someone with experience in taxation can explain to me how this is legal?
Lets say I bought a car for $60,000 dollars and I paid 7% ($4,200) dollars tax at the time to register the car (this is not leasing) after two years If I sell the car for $50,000 dollars the new buyer will have to pay $3,500 dollars in taxes. If the second buyer sells the car one more time the third buyer will also have to pay taxes again. Ok since the government is collecting taxes from every sells, why is the first owner of the car is not entitled to get back his taxes since only its been used for the $10,000 worth of the car, is there any law a such? please serious answers only.

Answer 1

First off, the US government doesn't levy sales and use taxes, the states do. Ergo, the US government isn't breaking any law what so ever.

Second, the tax you are paying is a "Use Tax" for the privilege of using the vehicle for an unspecified period of time. You could keep it for 20 years or 6 months, it's up to you. However the next owner of the vehicle will pay the Use Tax as well, again for however long they choose to keep the vehicle.

Many states will give you a break on the tax on a replacement vehicle if you trade one in or if you sell one within a specified period of registering a new car. For example, in MO you get the break if you trade in or sell a vehicle within 90 days of purchasing a new one. So if you bought a new $60k auto and sold the old one for $50k, you'd only pay tax on the $10k. Each state has its own rules on that so you'd have to check with your state tax authorities to see how this might apply to you.

Answer 2

The US government did not tax you on your car purchase, it was the state you live in. The US government does not have a sales tax (yet, see fair tax proposals). Sales tax is a tax on business transactions. The state provides many things that allowed you to buy that car...the road on which you drove to the lot, for example. This is their "cut" and the agreed upon method for the state to generate revenue. Some states do not have a "sales tax". By living in the state, you agree to live by the rules passed by your representatives. The sales tax is not a "use tax" that is based on the amount of benefit you received from using the car. Wait until you have to pay a "personal property tax" on the value of your car EVERY YEAR! Major rip off. Luckily my state does not have one (costs me 56 bucks a year to register my car).

If you would rather pay a "use tax", which bears some merit...you can take the idea to your local state representative and see if they like the idea and try to generate enough support to change the law. Better yet, run for office yourself! Tax issues are usually what gets most people driven to pay attention to politics when they get their first paycheck and ask, "whose FICA and why is he getting my money?".

Answer 3

You are not allowed to collect sales tax from the new buyer unless you have a tax license from your state. Are you charging people sales tax and not reporting it to the state? The tax is paid to your state and or city, not to the US Government. So you couldn't get anything back on your income taxes no matter what you did with the car.