The department’s Motor Vehicle Understated Value Program is a partnership between the Pennsylvania Department of Revenue and the Department of Transportation that addresses situations where an automobile buyer or seller knowingly understates the purchase price of a vehicle in order to reduce the sales tax liability on the sale. To prevent such tax evasion, the Department of Revenue routinely reviews automobile purchases where the reported purchase price is substantially lower than fair market value and requests verification of and basis for the reduced purchase price. If the buyer is unable to provide sufficient verification for the lower purchase price, the buyer is assessed sales tax based on the fair market value.
Inquiries about the program or questions about Motor Vehicle Understated Value Program correspondence may be directed to 717-214-7287 (Option 2).
If you received a Notice of Transactional Use Tax Due from the Department of Revenue for a vehicle purchase, you can file your return and make payment at mypath.pa.gov.
A purchaser must verify the purchase price by submitting to the Revenue Department a legible copy of the bill of sale, statement from the seller, financial agreement or other relevant information that verifies the purchase price.
A bill of sale must include:
- sellers name, address and phone number
- purchasers name, address and phone number
- purchase price
- date of sale
- make and model
- vehicle Identification Number (VIN)
- verification of sales tax paid if applicable
If the purchaser submits a statement from the seller, the statement must include all of the following:
- name, address and phone number of the seller,
- date of the sale,
- purchase price
- seller’s explanation of purchase price
- make, model and VIN number of the vehicle.
- seller’s signature
If the Revenue Department is satisfied with the documentation provided, the case will be closed and no additional sales tax will be due.
The Revenue Department does not accept copies of the MV-1, MV-3, MV-4ST and MV-13 filed with PennDOT as proof of purchase price.
Failure to provide the requested documentation will result in the assessment of additional sales tax based on the vehicle’s fair market value, plus penalty fees and interest from the date of the purchase.
Verification of purchase price may be faxed to (717) 425-2954 or mailed to:
PA DEPARTMENT OF REVENUE
BUREAU OF DESK REVIEW AND ANALYSIS
PO BOX 280709
HARRISBURG PA 17128-0709
Email: RA-RV-BDRA-VCI-SUT@pa.gov
In situations where the purchaser cannot provide documentation to verify the purchase price recorded on the application for registration, the purchaser may provide documented proof of a lower fair market value than that reported to the Revenue Department. Documentation may include copies of bills showing major repair work or a written appraisal from a certified dealer stating the vehicle’s value and providing a detailed description of the vehicle’s condition and/or pictures of the vehicle.
If Revenue is satisfied that the purchaser has adequately documented a lower fair market value than the value reported to the Revenue Department, it will adjust the amount of sales tax due to reflect a percentage (six or seven percent) of the purchase price. Otherwise, the purchaser will be billed for the additional sales tax due, plus penalty fees and interest, based on the fair market value originally reported to the Revenue Department.
Copies of the MV-1, MV-3, MV-4ST and MV-13 filed with PennDOT are not acceptable to verify the fair market value.
Verification of fair market value may be faxed to (717) 425-2954 or mailed to:
PA DEPARTMENT OF REVENUE
BUREAU OF DESK REVIEW AND ANALYSIS
PO BOX 280709
HARRISBURG PA 17128-0709
Email: RA-RV-BDRA-VCI-SUT@pa.gov
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)Opens In A New Window]. 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.
Credits
Pennsylvania grants credit for sales tax that is paid to other states for vehicles purchased for use outside of Pennsylvania, if the other state grants a similar credit for payment of PA sales tax. The REV-227 – Reciprocity Chart [PDF] lists states for which Pennsylvania grants credit.
Payment of Tax
Payment can be made online when completing a PA-1 Use Tax Return via myPATH at mypath.pa.gov. Mail payments to:
PA DEPARTMENT OF REVENUE
BUREAU OF DESK REVIEW AND ANALYSIS
PO BOX 280709
HARRISBURG PA 17128-0709
Email: RA-RV-BDRA-VCI-SUT@pa.gov
- 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.
Taxpayers may appeal sales and use tax assessments issued under the Motor Vehicle Understated Value Program and/or file for a refund of sales tax paid under the program. Appeals and refund claims may be filed through the mail or online.
- MV-1 Application for Certificate of Title/Application for Registration
This form is used to register a vehicle that is not currently titled in Pennsylvania. The licensing agent is required to complete and submit this form directly to PennDOT. Sales tax exemptions are claimed by listing the appropriate exemption code on line 1A under Section I. Exemption codes are listed on the back of the form.
This form is used to by authorized issuing agents to verify the fair market value of a motor vehicle. It should be completed in instances where the reported purchase price is significantly lower than the fair market value. The form is available on PennDOT’s Driver and Vehicle Services Website, under Forms and Publications.
This completed form is attached to the MV-1 or MV-4ST for any transfer for which a gift exemption from Pennsylvania sales tax is claimed. The form may be used for vehicles currently titled in Pennsylvania and for any vehicle given as a gift with an existing out-of-state title. The form is available on PennDOT’s Driver and Vehicle Services Website, under Forms and Publications.
- MV-4ST, Vehicle Sales and Use Tax Return/Application for Registration
This is form is used to transfer vehicles registered and titled in Pennsylvania. Licensing agents are required to complete and submit this form directly to PennDOT. Sales tax exemptions are claimed by listing the appropriate exemption code on line 1A under Section I. Exemption codes are listed on the back of the form.
- PA–1, Online Use Tax Return can be filed via myPATH at mypath.pa.gov.
This form is required to remit payment in response to a notice received as part of the Motor Vehicle Understated Value Program. You will need your Letter ID and SSN, FEIN, or ITIN to complete the form.
This chart identifies the states for which Pennsylvania grants a credit for sales tax paid on vehicles. This chart is available on the PA Department of Revenue’s Website under Forms and Publications.