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Motor Vehicle Understated Value Program - Common Problems

  • Gifts

Vehicles received as gifts are not subject to sales tax. However, the recipient of the gift must show that either the purchaser paid sales tax on the vehicle at the time of purchase or he/she paid use tax on the current fair market value of the vehicle in order to register the vehicle in Pennsylvania.

In many instances, taxpayers are incorrectly informed by licensing agents that a minimal purchase price (e.g. $1) must be reported on the MV-4ST, even if the vehicle is a gift. This is not correct. The listing of a nominal purchase price often triggers a transaction review by the Department of Revenue because the nominal purchase price is substantially less than the fair market value of the vehicle.

When registering a vehicle received as a gift, the taxpayer should fill out MV-13ST, Affidavit of Gift. Proper completion of this form usually prevents the transaction from being referred to the Department of Revenue for review.

  • Liens

Many taxpayers claim they receive vehicles as gifts or for nominal amounts when they instead assumed the payments of existing liens. Since the assumption of a lien represents consideration given in exchange for the vehicle, sales tax is due on the amount of the outstanding lien assumed. The remaining lien amount represents the true purchase price of the vehicle and is subject to sales tax.

  • Business Transactions

Many business owners believe vehicles can be transferred between commonly owned businesses without the payment of sales tax. While an exemption exists for transfers from a sole proprietorship to its owner, all other transfers between business entities are generally subject to tax. In addition, such a transaction is considered “not at arm’s length” and subject to sales tax based on the fair market value of the vehicle.