Flipping Cars

5 Important FACTS You Need to Know About Flipping Cars

1. Flipping cars is illegal!

2. It’s a violation of your state laws

3. It’s federal and state tax fraud!

4. It may have heavy fines or jail time associated with it!

5. Flipping cars could stop you from ever getting a dealer license

Don Massey

Don Massey
A Colorado Dealer

 

I hope I have your attention.  I’ll explain the 5 facts about flipping cars!

But first, let’s define what “flipping cars” means.

The agreed on general definition is to buy and sell cars without a dealer license.  Another name for it in the auto industry is curbstoning.  This comes from the fact that individuals who want to sell a car usually park it at the curb with a for sale sign in the window.

The California DMV says…. Curbstoning is the repeated, unlicensed “flipping cars” for profit.  Curbstoners are people who actively and regularly buy and sell vehicles without a license, proper permits or a legally established place of business and who, many times, represent themselves as private sellers in order to attract buyers.

So on to the 5 facts….

Flipping cars is illegal!

To buy and sell cars, for profit, without a dealer license, is illegal in EVERY state.  Some states MAY allow a minimum of sales without a license.  This is usually 3-6.  Check your state’s requirements.  Many states set the number at absolute ZERO (California).  Don’t blindly follow what you read on the Internet blogs and forums.

As an example here is what Georgia’s FAQ website states:

I thought I could sell up to five vehicles in a year before I had to be licensed?

The “five cars per year” statement has been misinterpreted by many people.  The origin of the “five car” phrase is the Used Motor Vehicle Dealers’ and Used Motor Vehicle Parts Dealers’ Registration Act.  O.C.G.A. 43-47-2 (17)(A) states that “…the sale of five or more used motor vehicles in any one calendar year shall be prima-facie evidence that a person is engaged in the business of selling used motor vehicles.”  This means that evidence indicating that a person has sold five or more used motor vehicles in any one calendar year can be used to show that the person is engaged in the unlicensed practice of used motor vehicle sales.  This statement should be read in its context, and should not be misinterpreted to mean that a person may sell up to five vehicles in a year before becoming licensed.

It’s a violation of your state laws!

The auto industry is one of most regulated industries.  Both in manufacturing and sales.  Why the sales side regulations?  A car is the second most expensive purchase a consumer makes.  A home being the most expensive.

To protect consumers from being ripped off, states have passed dealer licensing regulations and rules.

The states have inspectors to monitor curbstoners.  They track by title transfers using names and addresses in the state DMV database.  They check Craigslist for repeated sales by individuals.

Watch this video.  It’s a California state investigator speaking.  He reflects the attitude of other state’s investigators about car flippers.

If you’re selling cars, as a business for profit, without a license (flipping cars), your state considers you a curbstoner and will take legal action against you.

It’s federal and state tax fraud!

Some car flippers will slip a title or use an “open title”.  This means they never register the car in their name.  They leave the buyers info on the title blank so they can fill in the name of the person they resell it to.

When a car flipper buys a car he is the new legal owner.  EVERY state requires the flipped car owner to register the vehicle, obtain a new title and pay fees and taxes.  To not do this is tax evasion.

When an invidual or business sells vehicles for profit they must also pay state and federal income taxes on their profits.  To not do this is tax evasion.

It can have heavy fines or jail time associated with it!

Flipping cars can get you in legal trouble.Here’s Georgia’s statute  (O.C.G.A. § 40-2-39.1 – GEORGIA CODE)

(g) Any person who violates this Code section shall be guilty of a misdemeanor and,upon conviction thereof, shall be subject to a fine not to exceed $1,000.00 for each violation or imprisonment for a period not to exceed 12 months, or both.

South Carolina law is:  If you operate as a dealer, wholesaler, auto auction, or transporter without the proper license, you may be convicted of a misdemeanor and fined up to:

1. $200 and/or imprisoned for up to 30 days for first offense.

2. $1,000 and/or imprisoned for up to six (6) months for second offense.

3. $10,000 and/or imprisoned for up to two (2) years for third and subsequent offenses.

ALL states have similar stautes, fines and possible imprisonment for violating dealer licensing laws.

So follow what the YouTube videos and “flipping cars for profit” web sites are saying and you could be toast!

Want more proof about jail time?  Click here!

Flipping cars for profit could stop you from ever getting a dealer license! 

Most states will deny an application for a dealer license if the applicant has been found guilty of past fraudulent actions concerning the sale or lease of motor vehicles.  As an example here is Arizona’s law.

An applicant convicted of fraud or an auto-related felony within the last ten years or any other type of felony within the last five years will have his or her license application denied.

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Don Massey

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Comments

Flipping Cars — 53 Comments

    • Yogi
      There is only one alternative. Obtain a dealer license so you’ll not have to worry about buying and selling vehicles illegally. Plus you’ll have access to true wholesale priced vehicles at dealer only auctions. The best to you in your endeavors.
      Don

  1. Hey there, You’ve performed an incredible job. I will definitely digg it and in my view recommend to my friends. I am confident they will be benefited from this site.

    • Thanks for nice comment. Trying to help all understand the various issues about getting a dealer license.

  2. bought a car back in sept 2012 and i mailed off the title to DMV so I can register it in my name and my daughters name and we have been waiting for 10 months for some kind of information about what fees we will have to pay. It comes to this: This car was flipped, the guy we bought it from made it sound like it was his, and he said he paid for reregistration and smog. Well, I went to DMV yesterday and DMV couldn’t release any info on the car,because on the car the registration’s hasn’t been paid since 2011, thru 2013 and the guy told me that the car was smogged and it wasn’t. I just got the paper work today June 29, 2013. Where do I go from here?

    Debbie Richardson

    • Debbie

      What do you mean, you the paperwork today? What paperwork?

      So sorry to hear about your problem with a flipper. You are completely at the mercy of the DMV. I would go back to the DMV and escalate your issue to a supervisor. If you’re not happy with the answer he/she gives you then ask to speak to their superior. Just keep moving up through the ranks until you find the answer.

      As difficult as it may be, DO NOT get mad or verbally attack the each level of the bureaucrats. They only know how to talk in their language. Make a point that because of this flipper you have a vehicle that you can’t drive and just need it. Can they help. That’s all you want.

      If that gets nowhere ask them who or what government organization can you go to for help. This sounds like a violation of laws by the flipper. I might go to your local District Attorney’s office if the DMV is of no help.

      Again sorry, and good luck.

      Don

  3. I purchased a car off of craigslist for $1000.00. When I took the title to the BMV, I could not register it because it was under the company name where my signature had to go. Tried to contact the people and the lady offered to take the title back and fix it. She told me to meet her in the back of a hotel. My husband said no, because if she takes the title, I wouldn’t have a legal leg to stand on and I would never hear back from them. as it stands, I still Have yet to hear back from these people. Now what????

    • Lisa

      If I were you, I would consider asking for your money in exchange for the car and the title. Buying cars on Craigslist from individuals can be very problematic as you have found out. I’m sorry for your situation. I wish I had an easy answer.

      Don

  4. Could you provide more info on Flipping Cars – It’s Illegal in every state in conjunction with cars for sale by private owner? I don’t feel it is completely accurate.

    • Of course it’s not illegal for individuals to sell their private cars. That is a private transaction.

      Flipping cars is where an individual specifically purchases a vehicle for resale. That is a business transaction and is covered under the laws in a state regulating vehicle sales to the public. It is illegal to buy and sell cars for profit without a dealer license. Period.

  5. This year I have sold 5 vehicles. Recently I titled 2 one I did not get tags for, because it was intended to be a gift for my niece. She did not like the car so I sold it. But are you saying if I purchased a car and title it and pay the sales tax, the Motor Vehicle Board can’t say I am trying to buy and sell cars? I don’t buy and sell cars I just have sold a total of 5 cars this year to downsize. But thats legal?

    • Let me say it simply… If a person is buying and reselling vehicles for the purpose of making a profit, every state requires that person to be licensed as a dealer.

      That’s it. Nothing more. It’s easy to understand. A person knows why they are buying and selling cars. If it’s to make a profit then it requires licensing.

  6. Have you heard about the company Dealer Licensing Consulting? They are telling me that they charge me a monthly rate, which will allow me to buy and sell vehicles under their name, and then they 1099 me at year end… Is this legal?

    P.S. This is great info!

    • Nate

      It is legal when applied according to the laws in your state. Let me use my state as an example to decide whether this would be an option I would consider. Note this is called a “Shared dealer’s License Program”. I would NOT have a license. I am on the LLC and probably would be issued a 1099.

      The problem is NOT what they say is OK but what YOUR state says about the program. Pass it by your dealer licensing organization.

      As an example this program could put me in an illegal position with my state if I was not aware of the rules of the dealer licensing board in Colorado.

      Yes, I could go to auctions and purchase. Because I would be registered under the dealer license in the program. This is not a state or federal concern. This is a RULE that ALL auctions have. Why? Because they cannot sell to the public. Why? Because they don’t have a dealer licenses to sell to the public. So THEY, the auctions, require the DEALER license to screen out the public.

      So now I can go to the auction but…. in Colorado I can’t sell them under my name. I can’t sell them from my home. The cars I purchase would be assigned to the dealer in the program. I would have to keep the vehicle at the dealership and show it there and the actual transaction would have to take place at the dealership.

      So please CHECK with your state licensing organization before entering into any of these dealer programs.

      Thanks

      Don

  7. I read your article and watched your videos. However, you make it sound scarier than it is. I live in Georgia, and plenty of my friends flip cars, heck, I’ll even flip one from cl to autotrader every now and then if I see a good deal. My point is, if you practice common sense, you should be fine. Besides, here in Georgia, it is also a misdemeanor to have sex with anybody but your wife. Just like its illegal to flip cars. Yes, if you flip 20 or so a month (like the guy in Denver), you are swimming in shark infested waters (in that case, it makes sense to get a dealers license). But if you flip 1-2, no more than 3 per month, a dealers license will cost more than your profit, and you should be fine as far as the law is concerned. In Georgia for example, the police have bigger fish to fry than harassing people who make an honest buck here and there. I even know a few cops who do this on the side, and they didn’t even know it was illegal, but now that they know, they continue to do it.

    But personally, I would never buy a used car for myself from a dealership. Dealers can scam you 10 times more than a curbstoner. Even though they are licensed, there are still numerous loopholes in the law which allow for them to scam you. Loopholes which every single used car dealer utilizes, because if he didn’t, he would barely stay afloat.

    • llya

      As I said flipping cars is illegal. Period.

      Rationalization of one’s actions doesn’t excuse the law or the consequences.

      Police can fry their own fish. The police have nothing to do with dealer licensing. Each state have compliance officers in their dealer licensing organizations. They are the ones who find the offenders not your local police.

      So let’s summarize your basic assumptions. Cops are dishonest. Dealer’s are dishonest. Only car flippers who violate the law are making an honest buck. Ok.

  8. Don,

    I’ve been thinking of dealing cars in my home state, Tennessee. I’ve read the by-laws about doing so and you even mention the “5 car” mandate. What I’ve read is that if I go beyond the 5 car limit, that I have to have a lot that fits so many cars. Of course I want to get my license before I proceed, but is there anyway I can forgo having to pay for a lease on a lot? My hope was to sell 4 to 5 cars a month and use,for the most part, the auction as a resource. I simply want to sell them at a wholesale price and with an “it is what it is” mentality. Any advice?

    John

    • John

      Thanks for your question. If you review the requirements for a license in your state, you’ll find it does not say you have to a “lot”. It states requirements for your business location but think out of the box. Find a cheap location that meets the requirements, not what you think a car lot should look like. I would consider a co-location with another business. I have a friend who is co-located with a garage and a barber shop! It’s a business location that meets the requirements of the Colorado dealer licensing board which are much like Tennessee’s. Not beautiful but it works.

      I know of another dealer located in a commercial storage unit location. The difference is, the doors are garage doors, a 20×40 interior space and public restrooms.

      Again, search for places that meet the requirements, not your preconceived notion of a car lot.

      I cover this and more in my resources.

      Don

  9. I have been a victim of having a vehicle sold to me that was not in their name. It was advertised as clean title and once funds were sent (from Europe, my home) and I received a copy of the title it showed a different name. They purchased the vehicle in 07 it’s now 2013. The shipping company will not ship the vehicle as laws state for customs that it must be in the sellers name . I doubt they will change the title or refund me. Help! Who do I go to? I have names addresses and phone numbers and a Facebook contact for one of them. Advice appreciated

    • Car Flipping Guy

      If the intent of buying the car was to resell the car at a profit then the buyer is in the business of buying and selling cars for profit which requires a license.

      What you have on your website is a business plan for buying and selling cars for profit which requires a license.

      Don

  10. Please help me out. My friend sold her used jeep with a blown head to a young girl who said her dad was going to fix the car the head was not a problem. A couple weeks later she got court paper some guy is claiming she sold him the car. He wants the money back he claimed to have paid for the car. Arizona does not require information on the buyer, just the registered owner. The girl told the man she was my friends daughter and was selling the car on her behalf. MVD issued a notarized title with the purchasers name blank and the selling price blank. three days later the car was sold and the notarized title and bill of sale had all the blanks filled in. Please help. She just wants this guy to go away. He was scammed but not by her.
    Thank you.
    Lynn

    • Lynn

      The back of the Arizona title is to filled by the SELLER to transfer ownership. There IS a buyer’s section and a seller’s section both to be filled put by the SELLER. If your friend did not put the name and address of the young girl she sold it to then SHE created the opportunity for the “flipper” to sell the car without registering it. I’m sorry I don’t have any advice except for talk to the DMV. Bases on what you’re saying, your friend did not complete the transaction according to your state regulations and that’s why the guy thinks your friend sold him the car.

      Don

  11. Hi Don, I am based in north VA and I am intending to start this kind of business. I thought about getting a dealership license sinec I look to my stuff to be legal all times. the only thing that bothers me in the equation is the BOND.. I understand it as to freez 25,000 for 3 years. with this amount of money I can sell and buy lots of vechiles in three years. the other thing is to pay for the rent of you intended location for at least 3 to 4 months before have your license… this is along time to get into bsuiness. is there any kind of tools to expediate this?

    Thanks for the information presnted in your add here.. it was really helpful..

  12. I just bought a used car from a private seller and we realized after the fact that it was flipped. The owner(of 3 weeks) lied about everything. You mentioned Georgia’s statute and South Carolina laws concerning this crime, could you help me find if Utah has a similar law or statute? We are trying to figure out what to do. Thank you

    • Shellie
      Without knowing all the details I can only recommend you contact the Utah Motor Vehicle Enforcement Commission and file a complaint. Their telephone number is 801-297-2600.
      Sorry to hear about your problem. Good luck in getting it resolved.
      Don

  13. At the end of the year do you have to report the profit you made to the IRS then pay taxes on all of it or do you just have to change the title over?

    • Skyler

      I don’t quite understand your question. You buy a car and sell it for profit, then you owe the IRS taxes. You buy a car and don’t sell it, then you owe no taxes. A part of the selling process is signing the title over to the new owner.

      Don

  14. So I’m confused is buying and selling excessive amounts of used cars throughout the calendar year with the intentions of making large tax free profits illegal?

    • Dave

      If you are selling cars for profit then you are operating a business. Your business must meet the statutes for your business in your state. As a business you are to be licensed in your state, county and city. And as with any business you are responsible for reporting income to the IRS and paying applicable taxes.

      Let me put your question in a different format. “So I’m confused is buying and selling houses throughout the calendar year with the intentions of making large tax free profits illegal”?

  15. I bought a truck a truck from a flipper, they covered up the frame with bando and painted it so the buyer won’t see that it is completely rusted. Now he wont take it back, what can I do about? This is in Illinois.

    • Ruben

      There is not a lot you can do about the truck or getting your money back. When anyone buys a vehicle it is sold and bought as-is. That’s why it’s important to have a vehicle checked before purchase or buy from a business or someone you trust.

      If you’re for sure this person is a flipper you can report him to the State of Illinois dealer licensing in Springfield at 217-782-7817.

      Don

  16. I would like to get in the business of flipping cars legally. I heard that rather than getting a dealer license, you could register as a agent of a dealer. Could you explain how that works? Are there any pitfalls to becoming an agent instead of getting a full blown dealer license?

    • Ed

      There is no such thing an “agent” of a dealer. Go into any dealer and ask to be an agent for them. No, please don’t. Dealer’s have owners and employees. No one “agents” for them. A sales person is as close as you’ll get to being an agent for a dealer.

      There is so much mis-information on the Internet about selling cars, agents, flipping cars, renting a license. You have mis-informed folks on forums, chat groups and on Ask.com, Yahoo questions etc etc just adding to the “noise”.

      Read all the pages on this site to see some of that mis-information and how it affected folks.

      There is no half-blown license to buy and sell cars. If you want to sell cars to the public you must be licensed in YOUR state, not another state 500 miles away. You can’t be an agent. No dealer would jeopardize his license to put an inexperienced person on his license. Plus it would take approval by the state, insurances and bonds would all have be changed. When a person is on a license they are the OWNER(s) of the license and the business and liable for all.

      Now…. is it an impossible thing to obtain a license? No, it is possible, with guidance, to obtain a license with the minimum requirements. And that’s what my eBooks are about. Learn from a licensed dealer, not from Ask.com or someone “selling” you a several hundred dollar package or monthly fee.

      There are guys who have invested in my resources and got their licenses (see testimonials) and to be honest, most say, no way. So are you a risk taker or curious? They’re $27 and you get FREE consulting. Why FREE, read the FREE consulting page.

      Good luck in your search.

      Don

    • Hey… Roger!

      It’s me THE Don Massey but not THAT Don Massey! You’re funny, Roger. For others reading this…. Don Massey owned several Cadillac stores around the country. He was headquartered in Plymouth, MI. He built stores all over the country. At the end of the last century his annual says were almost a billion dollars. He died at 83 in 2011. He was fondly called, “Mr Cadillac”.

      So that’s it.

      Don Massey

  17. I’m asking on behalf of a friend who has sold about 100 cars each in Washington State, Arizona, and Michigan over the past many years, and now wants to clear up the mess he’s in (for illegally selling cars, not paying taxes, etc.). What does he need to do to settle these problems with the right authorities?

    • Seattle Rain

      I’m sorry I can’t give you the answers since it’s in 3 states. I would find a good tax attorney for advice. Taxes would be my primary concern.

      People reading this post can see how “flipping cars” is a business with license with tax consequences.

      Don

  18. If it is illegal to be licensed in a particular state and then sell a vehicle to someone in a different state, then how are thousands of vehicles being sold daily online across state lines without issue?

    Also, if these actions are against the law, then wouldn’t these companies be turning everyone who signs up into criminals? Thus why wouldn’t there be any action to stop these companies (some that have been in business for over two decades) to keep from doing what they’re doing?

    Thanks

    • Curious

      It is NOT illegal to be licensed in one state and sell cars to people in another state. As you stated it, it is correct. But the important point to be made is that the holder of the license must be IN the LICENSEE’s state where the car and paper transaction is taking place.

      As an example a licensed dealer IN New York can sell a car to a person in any state. A person or business with cars PHYSICALLY LOCATED and doing business in Illinois with a dealer license from New York CANNOT legally sell cars in Illinois or to any other person another state. Why? Because he is performing the business in Illinois and the State of Illinois says anyone OPERATING a business IN Illinois must be licensed by Illinois. This person is not performing the business in the state where he is licensed. (New York).

      The companies who help people get licenses are not performing any illegal operation. It is the HOLDER of the license who is violating state statutes. If a driver training school helps me get a driver license, they have no responsibility on how I use my driver license.

      And states are starting to crack down. Example: In the state of Indiana, there have been companies for several years helping people get a wholesale dealer license in Indiana. The companies provide them a business location for a few hundred dollars an month and fill out the forms. These new licensees knew nothing about the license or the statutes in Indiana or Illinois. Read about Jerry’s misuse of this license HERE and you’ll also read about a fine of $25,000 that was levied on Dan Grissom in Illinois with an Indiana dealer license.

      These Indiana companies literally licensed hundreds of dealers around the country causing problems for national auctions and other states’ titling and licensing departments. Finally the State of Indiana had enough because they could do nothing about the companies helping people get an Indiana dealer license. These companies are just providing information and an office space. They are only landlords.

      So Indiana decided to just “kill” the Indiana dealer license as of June 30, 2015. See the information on their website here…. Indiana Secretary of State

      Before you buy into one of these offers of “getting you a dealer license” in another state or even your own state, please check with your state’s licensing department.

  19. Hello Don,

    My brother and I are planning on reselling/flipping cars but we are not sure about how to legally do it. We need some good advice. So we probably are not going to have the qualification to qualify for an automotive dealer license in our state (Missouri). We would like to sell under 6 cars per year (the legal limit) without a dealer license. However we are unsure of how to insure the cars and sell them. We feel like if we keep pulling cars in and out of our insurance policy, they will threaten to drop us. What is your advice?

    Thank you, we really appreciate it!

    • Patrick

      As you see you’ve ran into one of the problems in “flipping cars”. Insurance. Since you are not a dealer you will have to register, pay fees and sales tax on every vehicle you “flip”. You’ll need to notify your insurance company when you add or remove vehicles from your personal policy. They might ask are you operating a business of buying and selling cars. Of course you are. Here’s the questions that brings up. Do you need to have a business license from your city, county or state? Not the dealer license but a business license. If you sell a car and someone gets hurt in an accident because of a defect in the car, can they sue you…. as individuals since you don’t have a formal business incorporation? Would they win? Probably not. But who would pay the lawyer fees? You have no liability business insurance. You would pay.

      I would CALL and check with the Missouri Department of Revenue to clarify what it means that you can buy and sell less than 6 vehicles a year and not be licensed. Most states have a “number” of vehicles that can be sold but many states such as mine (more than 3 in Colorado) have a clarification of the rule that says IF you are in business of selling cars for profit, you must have a license, no matter what number you buy and sell.

      If they say ok, that still doesn’t resolve the issues of other business licenses and liability issues.

      It may not be as difficult as you think to get a license. There are a lot of options, yet still meet your states requirements.

      Don

      • Okay thank you for your explanation. I will have to try and contact the Department of Revenue if I plan to go that route. So what are my options in terms of getting a license? If your book explains how to do it, can I just get one of the books instead of all of them?

        Thanks, Patrick.

        • Patrick

          Happy to be of help. Yes, my eBooks give you many options that may work with your state requirements. You receive all the eBooks and the supporting reports for one price. They are not sold separately.

          BTW, lived in St Joe and Perryville many years ago. My wife was born in St Louis and has sisters in the Festus area.

          After you read the eBook, if you still have questions feel free to email me or call.

          Thanks
          Don

  20. Don, i live in ga and have a tenancy to buy, sell and trade cars frequently. Not in the interest of dealing cars but more because i buy them as toys, (old Chevy muscle cars, four wheel drives ect.) I often get bored with them and sell them in the interest of buying something different (or just trade straight across) i haven’t kept track of the number closely but i haven’t made any significant “profit”. I’ve always tried to do everything i do within the lines of the law, do i need to be concerned with these type of transactions?

    • Dear Unsure

      Strictly based on what you say, I don’t see any issue with licensing. I would keep good records if you are ever questioned by an enforcement officer in order to prove your position. If you go over the limit in your state, a state computer will trigger a report to the licensing agency that more then “X” titles have been transferred. They then make a decision to investigate.

      Don

  21. Don–I live in Ca. and just bought a car from craigslist in Southern CA. When I got there to buy–he did not have the title but had registration paid and a form for duplicate title that he said was issued from DMV–He had signed and put his address. He advertised as a 2006 Honda Accord and had a carfax all ready for me. It was all pretty confusing and he was a good con. When I got home I started looking at the paperwork–Carfax was for a 2005 Honda and all other paperwork was for a 2005. The duplicate title form he gave me had a 2006 typed in. I did not feel good about transaction so I took it to the police dept. and had 5 cops checking it out. It has been chop shopped so to speak and they called and verified that the car had been in 2 accidents although the carfax did not show this. I am sick about this and have not been to DMV yet. The title was checked out by the Glendale dept and it is in his name but now I have bought a salvage title and I did not know it. What can I do now for myself other than go to DMV tomorrow and report it before I pay my fees. I am afraid that he is long gone with my $6800 ?

    • Liane
      I would contact the guy and attempt to reverse the deal. You should have NOT made the deal without a title in-hand. Of course you understand that now. The actual title should should show that it’s a salvaged car.
      Don

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