Trade In Impact on Hawaii General Excise Tax

[myMY808]

I reviewed my Tesla MVPA this evening after they reassessed my trade. I noticed that the GET is based on the full value of the Model Y.

I could've sworn that this wasn't the case the last time I traded in when I picked up my 4Runner in 2015. Sure enough, I looked back at the purchase agreement and the General Excise Tax (GET) that I paid was calculated based on the difference between the selling price of the new car less my trade.

Anyone know if something changed?

 

[mrbulk]

Yes it was always that way during the 54 years we lived in Hawaii (up till 2009).

 

[myMY808]

Yes it was always that way during the 54 years we lived in Hawaii (up till 2009).

Sorry — it always which way? GET on the full new car price or the net-of-trade price?

 

[mrbulk]

Sorry — it always which way? GET on the full new car price or the net-of-trade price?

You receive benefit of the net-of-trade (saves you money). Has it somehow changed?

 

[myMY808]

You receive benefit of the net-of-trade (saves you money). Has it somehow changed?

That’s what I thought too. The MVPA I just received from Tesla doesn’t reflect that, however.

I’ll ask Tesla, but really couldn’t find any clear documentation to back up a position that it should be net-of-trade.

 

[mrbulk]

That’s what I thought too. The MVPA I just received from Tesla doesn’t reflect that, however.

I’ll ask Tesla, but really couldn’t find any clear documentation to back up a position that it should be net-of-trade.

Also I would call DMV and see if they have opinion, or input, or more importantly, enforcement capability.

 

[nanimac]

I can’t find the tax department reference but google search of trade-in tax credit shows Hawai’i as one of six states that doesn’t offer trade-in tax credit. Not surprising though in our tax everything state!

 

[myMY808]

I can’t find the tax department reference but google search of trade-in tax credit shows Hawai’i as one of six states that doesn’t offer trade-in tax credit. Not surprising though in our tax everything state!

When I googled it, I saw the same thing — and repeated multiple times almost verbatim, so it looks like it’s from the same source of SEO content used to make ad-generating websites.

After a little more searching and fine-tuning of search words, I think I found what I was looking for. From the instructions for the business filing their GET form (form G-45):

https://files.hawaii.gov/tax/forms/2019/geins.pdf

Trade-Ins: For trade-ins, a merchant reduces the price of the new article by the amount of the trade-in allowance. The trade-in allowance is considered a price adjustment and is subtracted from the new article’s sales price and the net amount is reported in Column a. Any later sale of the traded-in article is reportable at the time of that sale. (Section 237-3(b).)

This means the business pays GET on the net amount, which is the new article less the trade-in allowance. The trade-in is considered a price adjustment or reduction.

Now, the state still gets its money, but that’s when Tesla sells the traded-in vehicle to the auction. Tesla will need to report the sale and pay GET on the amount.

This means the way Tesla is calculating the GET on my MVPA is incorrect, as they are calculating GET based on the sale price of the Model Y without the trade.

I’ve emailed my Delivery Advisor to see what she says. If anyone else who traded in a vehicle to Tesla can look at their final transactions and confirm whether they were charged GET correctly, that would be interesting to see if it’s just my MVPA (and may it’ll get corrected as delivery approaches).

 

[mrbulk]

Yeah I bought and sold several dozen cars in my 54 years there, and whenever I traded in a car to a dealer they always credited me back the trade amount (subtracted it from new car's price) and did not tax that portion.

 

[Carlh76]

When I googled it, I saw the same thing — and repeated multiple times almost verbatim, so it looks like it’s from the same source of SEO content used to make ad-generating websites.

After a little more searching and fine-tuning of search words, I think I found what I was looking for. From the instructions for the business filing their GET form (form G-45):

https://files.hawaii.gov/tax/forms/2019/geins.pdf



This means the business pays GET on the net amount, which is the new article less the trade-in allowance. The trade-in is considered a price adjustment or reduction.

Now, the state still gets its money, but that’s when Tesla sells the traded-in vehicle to the auction. Tesla will need to report the sale and pay GET on the amount.

This means the way Tesla is calculating the GET on my MVPA is incorrect, as they are calculating GET based on the sale price of the Model Y without the trade.

I’ve emailed my Delivery Advisor to see what she says. If anyone else who traded in a vehicle to Tesla can look at their final transactions and confirm whether they were charged GET correctly, that would be interesting to see if it’s just my MVPA (and may it’ll get corrected as delivery approaches).

I also just traded my S for a new X and they charged me for the full amount of the X with no reduction for the S trade-in. You are not alone. I will also be reaching out to my delivery specialist. Thanks for the research.

 

[myMY808]

I also just traded my S for a new X and they charged me for the full amount of the X with no reduction for the S trade-in. You are not alone. I will also be reaching out to my delivery specialist. Thanks for the research.

You’re welcome. Glad to have helped — this could be pretty significant. Let us know what they say.

I’ve reached out to my delivery advisor too, but she is based in Vegas and, in other discussions around the trade-in process, didn’t seem very familiar with how the process worked, let alone taxes.

 

[Casper702]

My GET was based off the full price too. I think Hawaii is one of the few states that doesn't allow reduction in sales tax when doing trade ins.

How Does Sales Tax Work on Trade-ins?.

 

[myMY808]

My GET was based off the full price too. I think Hawaii is one of the few states that doesn't allow reduction in sales tax when doing trade ins.

How Does Sales Tax Work on Trade-ins?.

That’s initially what I saw too — but it looks like canned content from a single source given that many of the sites returned by Google use almost the same verbiage.

The quote I referenced above is from the Hawaii Dept. of Tax instructions to businesses for completing their GET filings. I would consider that to be “the answer” but I know tax questions can be fairly complex.

My Tesla delivery adviser replied back that their Hawaii operations manager confirmed it should be taxed at the full amount, but I’m not convinced. I asked for the operations manager to contact me directly to have a discussion.

 

[myMY808]

I also have an inquiry into the Hawaii DoTax for a clear reading on this. As with anything tax related, it can be complicated. There may be more than one way to interpret and/or comply with the actual statute.

 

[mrbulk]

Best way is if you know a car dealer there (not Tesla), ask them the same question and see what they normally do in the same situation. I know for a fact that I did not get charged "double tax" when I traded in a vehicle in Hawaii. Because I already PAID tax on the trade in when I bought IT new. Government cannot tax me twice, and thus it may be that the Tesla outlet in Hawaii is simply (and perhaps very innocently) keeping the difference. For now.

 

[Carlh76]

That’s initially what I saw too — but it looks like canned content from a single source given that many of the sites returned by Google use almost the same verbiage.

The quote I referenced above is from the Hawaii Dept. of Tax instructions to businesses for completing their GET filings. I would consider that to be “the answer” but I know tax questions can be fairly complex.

My Tesla delivery adviser replied back that their Hawaii operations manager confirmed it should be taxed at the full amount, but I’m not convinced. I asked for the operations manager to contact me directly to have a discussion.

Yes, my delivery advisor forwarded me a google search that said Hawaii does not allow trade in credit. I now plan to respond with the link you provided and a link to the actual tax code that does reference discounts off of the full retail value when applying the tax. I can't believe she cited a google search and not the tax code. I also like the suggestion of asking another car dealer to see what they say. More to come. Thanks

 

[myMY808]

I've been trading emails with someone from the Hawaii Department of Tax. They were very quick to respond. They caveat their responses with a disclaimer that it is an informal opinion for discussion purposes, but here's their take on it:

There are two acceptable methods for handling trade-ins.

Method 1:
The car dealership reports the total sale of the new vehicle as gross income without removing the trade-in. The gross income is subject to general excise tax.

When the dealership sells the traded-in vehicle, they exclude the sale price of the traded-in vehicle from their gross income. Therefore, they do not pay general excise tax on the sale of the traded-in vehicle.

Example:

New car price of $10,000
Customer has a trade-in of $4,000
Dealer charges the new car customer the GET on the full new car price at $10,000 *4.712%
Dealer sells the trade-in for $5,000, and excludes this from gross income
The dealer can not charge GET to the person buying the trade-in car
Dealer reports $10,000 as gross income (plus the amount collected for GET)​

Method 2:
The car dealership exempts the trade-in value from the new car sale. They report the net amount as gross income. The gross income (which is the new car sale price less the trade-in) is subject to general excise tax.

When the dealership sells the traded-in vehicle, they must report the sale as gross income. The gross income is subject to general excise tax.

Example:

New car price of $10,000
Trade in of $4,000
Dealer receives $6,000 and charges the 4.712% GET on the net of $6,000
Dealer sells the trade-in for $5,000 and must report the $5,000 as gross income and can assess GET of 4.712% on the $5,000
Dealer reports $6,000 of gross income for the new car and $5,000 of gross income for the used car, total of $11,000 of gross income (plus the amount collected for GET)​

So Tesla is using method #1 and it is an acceptable method provided they are not charging GET to the person buying the traded-in car.

Basically the DoTax rep wrote that the main issue would be if they are charging customers more for GET than they actually pay. That's not allowed and you can file a consumer protection complaint if you suspect that's the case.

Not sure what happens if Tesla is actually collecting and paying more than they should be -- in the example above, they could be charging and paying GET on the $10,000 new car and charging and paying GET on the $5,000 trade-in, and reporting total gross income of $15,000 (plus the amount collected for GET). Technically, this is incorrect, but the loser would be the consumer, the winner would be the State. Neutral for Tesla since they are just a pass-through.

 

[Carlh76]

I've been trading emails with someone from the Hawaii Department of Tax. They were very quick to respond. They caveat their responses with a disclaimer that it is an informal opinion for discussion purposes, but here's their take on it:

There are two acceptable methods for handling trade-ins.

Method 1:
The car dealership reports the total sale of the new vehicle as gross income without removing the trade-in. The gross income is subject to general excise tax.

When the dealership sells the traded-in vehicle, they exclude the sale price of the traded-in vehicle from their gross income. Therefore, they do not pay general excise tax on the sale of the traded-in vehicle.

Example:

New car price of $10,000
Customer has a trade-in of $4,000
Dealer charges the new car customer the GET on the full new car price at $10,000 *4.712%
Dealer sells the trade-in for $5,000, and excludes this from gross income
The dealer can not charge GET to the person buying the trade-in car
Dealer reports $10,000 as gross income (plus the amount collected for GET)​

Method 2:
The car dealership exempts the trade-in value from the new car sale. They report the net amount as gross income. The gross income (which is the new car sale price less the trade-in) is subject to general excise tax.

When the dealership sells the traded-in vehicle, they must report the sale as gross income. The gross income is subject to general excise tax.

Example:

New car price of $10,000
Trade in of $4,000
Dealer receives $6,000 and charges the 4.712% GET on the net of $6,000
Dealer sells the trade-in for $5,000 and must report the $5,000 as gross income and can assess GET of 4.712% on the $5,000
Dealer reports $6,000 of gross income for the new car and $5,000 of gross income for the used car, total of $11,000 of gross income (plus the amount collected for GET)​

So Tesla is using method #1 and it is an acceptable method provided they are not charging GET to the person buying the traded-in car.

Basically the DoTax rep wrote that the main issue would be if they are charging customers more for GET than they actually pay. That's not allowed and you can file a consumer protection complaint if you suspect that's the case.

Not sure what happens if Tesla is actually collecting and paying more than they should be -- in the example above, they could be charging and paying GET on the $10,000 new car and charging and paying GET on the $5,000 trade-in, and reporting total gross income of $15,000 (plus the amount collected for GET). Technically, this is incorrect, but the loser would be the consumer, the winner would be the State. Neutral for Tesla since they are just a pass-through.

So, basically the person who buys the trade in gets the benefit of a reduced tax on the vehicle they are purchasing. Interesting. Thanks for doing the research.

 

[myMY808]

So, basically the person who buys the trade in gets the benefit of a reduced tax on the vehicle they are purchasing. Interesting. Thanks for doing the research.

Correct. As long as Tesla doesn't charge GET to the person buying the trade-in, they are compliant. I've seen pre-owned Teslas in Hawaii on their website, which I'm assuming are trade-ins; would be interesting to see if they quote GET on those.

I'm guessing other dealers use method #2 because it would be too much of a headache trying to track which used cars should not be taxed. It also provides an incentive to the new car buyer to trade in, as the new car buyer gets the benefit of not paying GET on the trade-in portion and the dealership gets a trade-in to flip for additional profit.

 

[LN1_Casey]

Perhaps Tesla just sells the used vehicles wholesale to another entity, or an auction lot. It'd make better finacial sense for them to not then charge GET for the used vehicle sale, as the whole seller would not want to piece meal the taxes of the vehicles.

I don't think Tesla has used vehicles on it's lots; at least, I've never seen them.