Selling a vehicle in Tennessee requires following specific state regulations outlined in the Tennessee Code Title 55 Chapter 17. Sellers should be aware of these legal requirements to meet compliance with state laws and protect the interests of both parties involved in the transaction.
The Tennessee Department of Revenue (TN DOR) has delegated the oversight of vehicle-related matters to the Tennessee Department of Safety and Homeland Security (TDOSHS). These agencies have established guidelines that vehicle sellers must follow for a hassle-free and legally compliant sale process.
Adhering to state regulations helps sellers avoid fines, penalties, or disputes. Providing a vehicle history report, disclosing known defects, and complying with odometer disclosure requirements are important for establishing trust with potential buyers. Failure to follow these regulations can lead to legal consequences and jeopardize the transaction.
Legal Requirements Before Selling a Vehicle in Tennessee
In Tennessee, individuals can sell up to five vehicles per year without requiring a license, provided the titles are in their name. This is by the Tennessee Code on Motor and Other Vehicles.
However, any potential seller should address several legal requirements and paperwork before selling for a smooth, lawful transaction. These are the following:
Title Preparation
Proper title preparation is crucial when preparing to sell a vehicle in Tennessee. The seller must ensure they have a valid, clean title in their name. This document serves as proof of ownership and is essential for transferring the vehicle to the new owner.
Before the sale, the seller should locate the original title and verify all information is correct, including the vehicle identification number (VIN), make, model, and year. If there are any liens on the vehicle, they must be released before the sale can proceed.
If the original title is lost or damaged, the seller must apply for a duplicate title before the sale. To do this, they must complete an Application for Duplicate Title and submit it, along with other requirements, at a local county clerk's office. A fee (typically $14) is required for this service, and processing times may vary.
Vehicle History Report
A vehicle history report, commonly requested from the National Motor Vehicle Title Information System providers, offers a detailed record of a vehicle's background. These reports compile data from various sources, including accident databases, state motor vehicle records, repair shops, and other industry sources.
Key information typically included in a vehicle history report encompasses:
- Details on previous owners and the duration of their ownership
- Reports any documented accidents or significant damage the vehicle has sustained
- Information about the vehicle's maintenance history and general insight into its overall condition
- Any outstanding safety recalls associated with the vehicle
- Indicates if the vehicle has a branded title, such as salvage or flood damage
The report supports pricing negotiations by giving the buyer insights into the vehicle's condition and history. It also reduces liability by preemptively disclosing comprehensive information.
Emissions Testing
In Tennessee, the enforcement of emissions testing varies by county rather than being standardized statewide. Larger counties like Hamilton, Rutherford, Sumner, Williamson, and Wilson do not mandate emissions testing for registered vehicles. Residents can read more about the announcement from the Department of Energy and Conservation.
Vehicles registered in counties with testing programs must undergo periodic emissions inspections during registration renewal. Certain vehicles, such as diesel-powered vehicles, motorcycles, and those aged 25 years or older, are exempt from these requirements regardless of the county of registration.
Emissions testing is conducted at authorized emissions testing facilities or vehicle inspection stations. During the test, vehicles are connected to specialized equipment that measures the levels of various air pollutants they emit.
The state employs various methods to verify vehicles meet emissions testing standards and comply with environmental regulations:
Visual Catalytic Converter Inspection
This inspection confirms the presence, integrity, and operational status of catalytic converters on vehicles from 1996 or newer.
On-Board Diagnostic (OBDII) Tests
This test assesses the vehicle's emission control systems by connecting to the OBDII system, which ensures it functions correctly and is readiness-ready in about two minutes.
Pressurized Gas Cap Check
The test checks the gas cap's ability to maintain pressure without leaking.
Visual Gas Cap Check
The emissions testing technicians examine the gas cap to ensure it is properly sealed and free from any damage.
Smoke Opacity Test
The smoke opacity testing probe measures particulate matter and pollutants emitted from diesel vehicle exhaust.
If a vehicle fails the emissions test, the owner must arrange for the necessary repairs or maintenance to bring the vehicle into compliance with emissions standards.
Considerations Related to Sales Tax
When selling a vehicle in Tennessee, the seller is not responsible for collecting or remitting the sales tax. However, sellers have important responsibilities to address before selling:
Providing Sale Price Information
Sellers must accurately disclose the vehicle's sale price to the buyer. This information ensures the buyer can correctly calculate and pay the required sales tax, avoiding potential penalties for underpayment.
Avoiding Sales Tax Evasion
Sellers must not collaborate with buyers to understate the vehicle's sale price. Intentionally misrepresenting the sale price to reduce the buyer's sales tax liability constitutes tax evasion, which is illegal and can lead to penalties for both parties. The TN DOR provides more guidance on tax fraud.
Maintaining Sales Records
While not mandatory, sellers should keep records of the sale, including the sale price, date, and buyer's details. These records can be invaluable in resolving any future disputes or inquiries related to the transaction.
Selling a Vehicle with a Lien in Tennessee
Selling a vehicle with a lien in Tennessee involves specific legal requirements. The seller cannot transfer ownership without first satisfying the lien, typically held by a bank or financial institution.
The lienholder maintains the title until the loan is fully paid off, and permission must be obtained from them before proceeding with the sale. Failure to disclose a lien to a potential buyer is unlawful and can lead to serious legal consequences.
The following are some considerations for the potential seller before putting up their vehicle for sale:
Lien Notification
When a vehicle in Tennessee carries an active loan or lien, the financial institution holding the vehicle's title serves as the lienholder. Sellers must formally inform the lienholder of their intention to sell the vehicle.
Sellers must obtain the contact information of the lender or financial institution listed as the lienholder on the vehicle's title. This information is typically found in the loan documents or can be obtained from the TN DOR.
Sellers must then draft a written notification detailing their plan to sell the vehicle. The notification should include important details such as the vehicle's make, model, year, VIN, anticipated sale date, sale price, contact information as the seller, and the potential buyer's contact information.
The seller can notify the lienholder through certified mail, email, or their designated online portal. It's advisable to retain a copy for personal records. Moreover, the seller can request written confirmation to ensure the lienholder acknowledges receipt and understands the intent to sell.
Lien Release
After notifying the lien holder of the intention to sell the vehicle, the next step is to collaborate with them to obtain a lien release document.
The lienholder will review the details of the outstanding loan to assess if the sale proceeds will be sufficient to cover the remaining balance. Upon confirmation, they will issue a payoff statement specifying the exact amount needed to settle the loan and release the lien.
The seller must use the sale proceeds to pay off the loan balance, often facilitated by having the buyer directly pay the lienholder the full sale price. Once the loan is fully paid, the lienholder will provide an official lien release document to formally relinquish their claim on the vehicle's title. The paperwork is provided to the buyer as part of the transfer process.
Clear Title Transfer
The process begins with the seller locating the vehicle's original title certificate and completing the title transfer section, which includes entering the buyer's information and the sale price. The seller must also enclose an odometer disclosure statement and other transaction specifics, such as the sale price and date.
With all necessary paperwork, the seller must submit the completed title, odometer disclosure, and lien release to the local Driver Services Center for processing.
Upon receipt, the DMV will transfer the title into the buyer's name and issue a new, clear title directly to the buyer by mail. This document serves as the buyer's official proof of ownership so that they have full, unencumbered control of the vehicle.
Other Options
When selling a vehicle privately, individuals have the option to pay off their loan beforehand or find a buyer willing to assume the loan.
Another option is to trade the vehicle at a dealership. Dealers often handle loan payoffs and title transfers as part of the trade-in process. However, trade-in values are typically lower than what could be obtained through a private sale.
If the remaining loan balance exceeds the trade-in value, sellers are responsible for covering the shortfall between the trade-in amount and the loan balance.
Motor Vehicle Sales Tax in Tennessee
Both the seller and buyer should be aware of several vital considerations regarding motor vehicle sales tax.
Sales Tax Rate
In Tennessee, the current state-level sales tax rate for purchasing motor vehicles is 7% of the vehicle's selling price. There is also a state single-article tax of 2.25%. The TN DOR administers and collects this tax, which applies in addition to any local sales taxes that may be applicable depending on where the transaction occurs.
Each county may impose additional taxes, such as a wheel tax and local taxes, which can vary based on the specific county.
Responsibility for Paying Sales Tax
In a private party vehicle sale within the state, the buyer is responsible for paying the 7% state sales tax. The sales tax must be paid when the buyer registers the vehicle in their name with the TN DOR.
Sales Tax for Out-of-State Buyers
If the vehicle is being sold to a resident of another state, the seller is not required to collect sales tax. However, the buyer may still owe sales tax to their home state when registering the vehicle there. The amount owed would be determined by the buyer's state of residence.
Exemptions and Credits
There are a few scenarios where a vehicle sale may be exempt from Tennessee's sales tax. For example, gifts between immediate family members are exempt. Moreover, if the buyer recently paid sales tax on a traded-in vehicle, they may be eligible for a credit to offset the tax on the new purchase.
The TN DOR sales tax primer explains thoroughly how the sales tax on motor vehicles is computed in the state.
Legal Requirements After Selling a Vehicle in Tennessee
During and after selling a vehicle in Tennessee, both the seller and buyer have important legal responsibilities to fulfill. These steps are crucial for officially transferring ownership, updating records with the state, and protecting both parties from potential liability issues.
Odometer Disclosure
For transparency, the seller is legally obligated to provide the buyer with an accurate odometer disclosure statement. The document states the vehicle's current odometer reading, which must be completed and signed by the seller. This form, known as the "Odometer Disclosure Statement," is available on the TDOSHS website.
Sellers must disclose the actual odometer reading at the time of the sale, even if the odometer has rolled over or shows less than 100,000 miles. If the displayed mileage does not reflect the actual mileage, the seller must indicate this on the disclosure statement by checking the appropriate box.
Various reasons may lead to discrepancies in odometer readings, such as a malfunctioning odometer or its replacement or repair. However, accurately reporting the true mileage is needed to avoid legal repercussions.
Tampering with or providing false information constitutes odometer fraud, a serious criminal offense with severe penalties. Under federal law, individuals convicted of odometer fraud may face fines of up to $10,000 and/or imprisonment. Buyers can also pursue civil legal action against the seller to recover damages from odometer fraud.
Title Transfer
To initiate the title transfer, sellers must complete the "Assignment of Title" section on the back of the physical title document.
If multiple sellers are listed on the title and their names are separated by "or," only one of the sellers needs to sign the vehicle title to complete the transfer to the buyer. However, if the names are separated by "and" or "and/or," then all listed sellers must sign the title before it can be transferred to the buyer.
In Tennessee, title transfers are handled through the local county clerk's office. Sellers must submit the completed title along with any necessary documents to the county clerk to start the transfer process.
Sellers can find further guidance on the title transfer process through the TN DOR.
Official Notification of Sale
To notify the TN DOR after selling a vehicle, the seller should remove the license plate. In Tennessee, license plates generally stay with the owner, not the vehicle. The seller should remove the license plate to avoid any potential issues with tolls, parking tickets, or traffic violations incurred by the new owner.
The seller should also submit a specific form, typically named a vehicle transfer notice. This form can be obtained from the TN DOR's website or at local county clerk offices. It will serve as the official notification to the state about the sale of the vehicle.
The seller will need to supply the following information:
- Current contact information as the seller
- VIN
- The license plate number removed from the vehicle
- Date of sale
- Name and address of the buyer
Although Tennessee law doesn't enforce a specific deadline for notifying the TN DOR after selling a vehicle, it is advisable to do so promptly. Ideally, this should be done within 30 days. Timely notification helps shield the seller from any potential liabilities related to the vehicle once it has been sold.
Consequences for Failure to Notify
Although Tennessee doesn't have explicit penalties for failing to notify about a vehicle sale, the potential consequences can be significant:
Continued Liability
If the vehicle stays registered in the seller's name, the seller could be held accountable for any legal or financial issues that arise.
This could encompass parking or speeding tickets or more severe incidents if the new owner is involved in an accident or criminal activity with the vehicle. The seller may also face civil liability if the new owner causes an accident and the vehicle is still listed under the seller's name in official records.
Registration Issues
The previous owner may continue to receive renewal notices. This can lead to confusion and unnecessary payments if not properly managed. If the new owner fails to register the vehicle, it could appear as if the previous owner is operating an unregistered vehicle, which can create complications with law enforcement.
Tax implications
In Tennessee, the status of vehicle ownership can impact personal property taxes. Failure to correctly record a sale may result in receiving tax bills for a vehicle that is no longer in one's possession. Additionally, this could complicate tax filings, especially in cases where the vehicle was previously claimed as a business expense.
Additional Important Information
Here are additional matters to be addressed for the sellers after completing the transaction:
Bill of Sale
Although not required by law in Tennessee, a bill of sale serves as a vital record of the vehicle transaction. It should comprehensively outline the vehicle's specifics, such as make, model, year, and VIN, along with the sale price, date of sale, and signatures of both parties involved.
This document proves invaluable in case of future disagreements regarding the sale. It can also be necessary when either party needs to validate transaction details for tax or legal purposes.
Insurance Cancelation
The seller should contact their insurance provider to formally cancel the policy for the sold vehicle. They may qualify for a prorated refund of any unused portion of the prepaid insurance premium.