Car buying question. A popular car buying tips website says: ?

Question

"Step 4 - Figure out your trade-in value

Use Kelly Blue Book to estimate the trade-in and private resale value of your car. It will be up to you to decide which way to go. Trading in will be simpler and easier but you will get a higher amount for your used car by selling it privately. You will also need to consider the savings on sales tax that you will receive by trading in your used car. The trade-in value of your used car will reduce the taxable amount of your new car purchase by the value of your used car trade-in. You can play with the numbers on the offer spreadsheet to help you decide what to do."

Does this actually work (in California)? Seems that would be skipping the tax man, and they wouldn't go for that.

Answer 1

it does actually work everywhere.

say the car your buying costs 20,000

and your sales tax is 7%

with not trade the sales tax would be $1,400

say you trade in your car for $7,000 on the same new car

     $20,000

  -  $7,000

  = $13,000

$13,000 is the selling price of the car so you only pay sales tax on $13,000 which would be $910, so you save almost $500 by trading it in. so to know how much you would save multiply the trade in value of your car by your sales tax rate and that amount is what you would save on sales tax by trading, so if your selling on your own you have to get at least that amount. so for the same example if your trade in value was $7,000 you would need to get at least $7500 selling it on your own to make it worth while.

Answer 2

In California that does not work. Sales tax is due on the price of the new car before the trade in is deducted. Look at page 10 of this pamphlet from the Board of Equalization (agency who collects sales tax for CA)

http://www.boe.ca.gov/pdf/pub34.pdf