Not sure where to ask this, so feel free to move it if necessary.
Suppose I want to buy a car from my friend for $8,000. To avoid registration costs, I pay him a measly $500 for the car and $7,500 for helping me brush my dogs (or something else insignificant... you get the idea).
Would this minimize the cost of registration/sales tax? Is there anything that prevents me from doing this (i.e. legally)?
The rules depend on the state, but if you're telling the state you paid less than you did, that's Tax Fraud.
In Texas, they don't even let you do this, however. The state maintains what is basically a "Blue Book" database of car prices, and you have to pay tax on whatever they value the car at for a minimum. I'm sure other states have done similar. Saying you bought the car from your buddy for $300 was never really believable.
It entirely depends on your jurisdiction, and possibly on the vehicle itself. In my county in Texas, they recently changed the law to put a stop to just the kind of thing you're talking about. Instead of charging sales tax or registration as a percentage of the price (which someone might report as being $100, even though they paid $10,000), they charge based on their evaluation of what that year, make and model is worth.
Unless it's a motorcycle... that's even more differenter.
The one thing that IS the same in all jurisdictions is that this kind of thing (tax fraud) is illegal.
Since this has been debated as possibly a legal or illegal question if this were a relative some states do allow a transfer of title ownership as a gift without the need to pay a fee. However, your question still is entirely based on your region. You should contact your local registration area to see what the rules are.
Also, fair warning. If you do plan to manipulate the system and declare that you purchased the vehicle for X amount and the seller files their taxes as an expense written off for a different amount they are required to provide your information from the sale to use it on their taxes. If the amounts are different there will be an investigation if you try to write off your sales expense for the vehicle. Also, that depend on your area when it comes to taxes.
Honestly, there is nothing preventing you from doing this other than your own integrity. You can, in fact, walk right into the registration office and sign the papers that your new ride cost you $500.
Like others have stated, depending on your location there may be programs in place to prevent this.
The chances of you getting caught are in the eyes of the beholder, and said programs your local government has put in place.
This is illegal, though. Punishment will vary depending on location.
