Best of TaxLetter: Cars-- A New York Tax Trap

For the past several months New York City has subpoenaed records from 858 garages and is searching the streets by night. It finds that 10% of the cars are registered outside New York State. There are many advantages to registering a car out-of-state. Sales tax is 8.25% in the City -- among the highest in the nation. But the main reason for registering a car out-of-state is that NYC auto insurance costs about 3 times more than elsewhere.

To find out where the owners live, investigators check income tax records, telephone directories, and building directories near where the cars are usually parked. They send notice asking car owners to explain why they have out-of-state license plates yet live in NYC. Penalties for those caught are assessment of 8.25% sales tax, $75 annual late tax (instead of regular $15), annual registration fees, and insurance problems. Interest and penalties will be added to all assessments. In addition, NYC believes that if residents register their cars outside New York, they may also be filing income tax as non-residents. They are working on that too. No amnesty is planned. (No. 59, 1987)