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Motor Vehicle Understated Value Program - Transactions Not at Arm’s Length

Under Pennsylvania law, the PA Department of Revenue is permitted to assess sales tax based on the fair market value of a vehicle when there is reason to believe that the vehicle transaction is “not at arm’s length.” In other words, because of affiliation of interest between the buyer and seller or for other reasons, the purchase price does not reflect the true value of the vehicle [see 72 P.S. § 7201(g)(3) & 61 Pa. Code § 31.44(b)]. Examples of transactions that are not at arm’s length include:

  • Transactions between related business entities;
  • Transactions between a business and its owner(s);
  • Transactions between a business and its employees; and/or
  • Transactions between business owners and family members.
These types of transactions often involve purchase prices that are less than fair market value and result in a sales tax bill being issued to the buyer through the Motor Vehicle Understated Value Program.