Arizona is one of just two states that does not charge sales tax on vehicles sold between private parties. However, if you purchase a car, truck, or SUV from a licensed dealer, they are required to collect a state sales tax of about 9 percent, depending on where in the state you reside. This price inequity sets up a huge problem for virtually everyone involved in car sales in Arizona.
But the problems go beyond just those involved in buying or selling cars: it costs tax payers an estimated $100 million annually in lost revenue for the state. Money is lost when dealers sell cars while masquerading as private citizens so they don’t have to charge sales tax. The practice is called curbstoning and it’s illegal.
Dollars and Sense
When I was Internet Manager for a major dealer, our average used car sale was around $15,000. A car dealer in Arizona has to charge their customer an extra $1,350 in state sales tax on this amount. This digs a deep hole for car dealers when competing against private sellers. Arizona businesses collect tax for the state and those monies are passed directly to the Arizona Department of Revenue. This means there is no added value to the cars that dealers sell to offset the added cost of the tax.
If that weren’t bad enough, dealers are also required by state law to provide a 15-day/500 mile warranty on the car. While true that there is a benefit to consumers to having the warranty, it’s also true that benefit will vary depending on the quality and price of the car sold. For example, it will help prevent dealers from selling lemons, or cars with serious problems, especially if they become apparent within hours or days after driving it off the dealer’s lot. To those buyers, this warranty is a godsend. However, the terms of the state-mandated warranty are so short that it won’t benefit most car buyers.
Yet, the added cost of that warranty has to come from somewhere. Dealers are forced to add the cost of the program to every vehicle they sell. This digs an even deeper hole for dealers when competing against private sellers.
In my new book, HELP! I Gotta Sell My Car NOW! New Rules for Selling Your Vehicle Online, I emphasize that car buyers can almost always purchase a car for less money from a private seller than from a dealer. Simply, the dealer has expenses that private sellers aren’t faced with. This creates a natural price disparity. The circumstances in Arizona create an even larger price gap between dealers and private sellers that is the source of growing problems.
Your Best Interest
Consumers make decisions that are in their best interest. It’s the foundation of our free market system. It’s no different in Arizona. As a consumer, if I’m presented with two similar cars, I’m going to balance the price of each with any added value one has over the other. If one is priced significantly higher than the other one, and the only added value is a minimal 15-day/500 mile warranty, I’ll probably take the lower priced car. It turns out that is what many consumers in Arizona do.
Note: See my articles The Benefits of Buying a Used Car from a Dealer on the added value some dealers provide.
Tomorrow: a deeper look at the implications of curbstoning in Arizona.