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Tax Exemption Between Relatives
If you purchase a vehicle from another person, 6% tax is due of the full purchase price or fair market value, whichever is greater. No tax is due if you purchase a vehicle from an immediate family member. An immediate family member is defined as:
*for tax purposes, a step relationship ends upon divorce
Supporting Your Claim
The Michigan Department of Treasury administers the collection of tax, and reviews tax exemption claims filed with title applications processed at Secretary of State branch offices.
If you claim a tax exemption based on a family relationship, the Department of Treasury may contact you to prove the relationship. You do not have to bring proof of relationship with you when processing a title application at a Secretary of State Branch Office. But if your claim is selected for review by the Department of Treasury after the title transfer, you will need to submit documents proving the qualifying relationship.
Documents to support your claim must show the relationship between you (the buyer) and the seller.
If an exemption claim is found to be invalid or cannot be proven, Treasury may impose penalties as high as 100% for making a fraudulent claim.
The following examples describe valid claims and the documents needed to verify the family relationship.
Kathy Smith buys a vehicle from Mary Brown. Kathy and Mary are sisters with the family name of Jones. Kathy claims the tax exemption on the title transfer. If contacted by Treasury to support her claim, Kathy would provide copies of her and Mary's marriage licenses. The licenses should include the parents' names. If the parents' names are not on the marriage licenses, she must also provide copies of her and Mary's birth certificates.
David Cole gives a vehicle to Tina Wilson as a gift. Tina is David's daughter and is married to Brian Wilson. Tina claims the relative tax exemption on the title transfer. To support her claim, Tina would provide a copy of her marriage license. If her marriage license does not include her father's name, she must also provide a copy of her birth certificate.
Joe Young buys a vehicle from his wife's sister Mary Jones. Because in-law relationships do not qualify for exemption, Joe must either (1) have the vehicle titled in his wife's name (sister-to-sister exemption), then transfer the title to his name (wife-to-husband exemption), or (2) have the vehicle titled in both his wife's name and his name. Both names may remain on the title or Joe may later remove his wife's name without tax consequence. If Joe chooses to transfer the title directly from his sister-in-law to himself, 6% tax will be due.
Ed Thomas purchases a vehicle from Tyler Arnold and claims a tax exemption of stepbrother. Ed's father is married to Tyler's mother, which creates the step relationship. Documents to prove this relationship are (1) copies of birth certificates indicating parents names for both Ed and Tyler, and (2) a copy of the marriage license of each of their parents.
However, for tax purposes only, if there is a divorce of the parents before the title transfer, the step relationship ceases to exist, and the transfer is taxable.
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