Salvage or Scrap Title

[extrememarine]

I have a question for anyone who has parted out a bike after an accident where the bike was totaled by the insurance.

Here is the dilemma. In order for the insurance company to issue the settlement check on the claim, I have to show proof that I have changed the title to either a salvage title or scrap title (options in Michigan).

A scrap title can be applied for it the repair estimate is 91% of the value of the vehicle or greater (the repair estimate put the bike at 91%). A scrap title is $20 and no sales tax; but the vin can never be re-titled; the vehicle has to be issued a new vin / assembled vehicle title.

A salvage title is the same fee, plus sales tax. The VIN can be re-titled in Michigan after an inspection. The sales tax is the catch; my understanding at this point is that they will charge me sales tax on the totaled value assessed by the insurance company - which in this case will put that sales tax at over $600 ($10,800 x 6%). I don't see a bare frame selling for $600 dollars.

On the odd chance I'm reading the required form wrong, the sales tax might be calculated on the salvage cost of the bike; the amount charged to me / deducted by the insurance on the claim. This amount is $2600.66, putting the sales tax at about $154; I'm just not sure which way the Secretary of State here will go.

Of the auctions I looked at on fleabay - only one mentions it has a rebuild-able salvage title.

Any suggestions / recommendations?

Thanks,

Wayne

 

[FJRBandit]

I read the Michigan Application for Original Title Salvage / Scrap. On the back of the application, at the bottom of the page , it reads,

Line 1 - Enter the full purchase price or retail dollar value. The full purchase price includes the full amount paid to the previous owner together with any outstanding debt owned.

In a weird way, in this transaction the insurance company is the previous owner. The full purchase price you paid is the amount deducted from the settlement by the insurance company for the salvage. Therefore, you should use the lesser amount of $2,600.66 when calculating the tax owed.

Line 2 – Enter 6% of the amount of line 1 ($2,600.66).

Given that it should only cost you $154 I would take the "salvage Title" route given that it gives the potential purchaser more flexibility. Good Luck!

 

[SkooterG]

What a stupid state! 'Sales Tax' for a salvage title? You got to be kidding me!

 

[extrememarine]

I'm going to lean towards the $2600 value - that is the price that the insurance sold it to me at. What is frustrating is that when I spoke to SoS help line yesterday, I got one answer (pay tax on $10,800), then a little be later got a different answer (pay tax on $2600).

The state looks at this as a sale - typically the insurance would be selling the wrecked vehicle to a auction house or salvage company, and for the vehicle to change hands, sales tax is charged. I imagine the sales tax has to be based on the salvage value otherwise these scrap yards would have a hard time staying in business.

Thanks for the feedback.

Wayne

 

[TomInPA]

I don't know how things work in Michigan, but I would think that commercial salvage operations are exempt from paying sales tax on the acquisition based on having to pay tax on the resale of parts.

On a related note, do you pay sales tax on the gross value of a vehicle purchase, or the net between your trade-in and the new vehicle? I remember in Ohio we always paid on net, but in California, we pay the full freight on the entire purchase price. Really makes you look at trade-ins differently.

 

[hppants]

This is intriquing. Are you sure you got this right?

Sales tax by definition is collected only when ownership changes. In this example, the insurance company does not formally buy your vehicle and sell it back to you. Rather, they simply determine the fair market salvage value for the vehicle and deduct that from your claim settlement. Internal SOP may require the underwriter to receive proof of a salvage title before issuing the check (a worthy process for liability reasons). However, what you are applying for is a change of title type and that is not the same as applying as a new owner.

In Louisiana, a Salvage title can most certainly be obtained without paying any sales tax. Perhaps you have gotten your wires crossed somewhere?

 

[Fred W]

I'm with pants on this one. I think the salvage tax would be for the situation where the insurance company settles with you in full and thus owns the bike, then sells it off to a salvage company. In your situation you are merely retaining ownership of your own bike. It never changes ownership to the insurance co. They are not selling it back to you because technically, unless they gave you full value (no deductibles) they've never owned it. I do not see any reason that you should be required to pay tax to the state for your own bike.