How to calculate car taxes

When you buy a vehicle, whether it’s new or used, you’ll always end up paying a little more than the “sticker price.” This is because, basically, the state government sees the purchase of a vehicle as a great opportunity to collect taxes. Find out here how much you pay in taxes when you buy a car.

Now, contrary to what you might think, your state’s Department of Motor Vehicles (DMV) basic fees, such as title, registration, and registration fees, are not big. However, the dealer selling the car may also charge their own fees.. Then add vehicle sales tax to this, and yes, this applies to private sales as well.

Some states charge even more taxes that are added to the total price of the car. For example a road tax, personal property tax, use fee, excise tax, privilege tax, or (if they really want to look fancy) an ad valorem tax.

Typical costs when buying a vehicle

  • Registration fee. Your state will charge you a certain amount to register the vehicle in your name. Some states have a flat rate, while others base the rate on the weight, age, or value of the vehicle. And don’t delay! Many states charge additional fees for late registration.
  • Tuition fee. The cost of tuition may be included in the registration or billed separately. Some states allow you to transfer plates from your old car to the new one, while others require new plates.
  • Car insurance. The Average cost of insurance can vary widely from state to state and depends on a variety of qualifying factors, such as your own age, driving record, and insurance status. To make sure you’re saving the most on your policy, experts recommend getting at least 4 auto insurance quotes.
  • Fee for transfer of title. This is a legal document that gives proof of who owns a vehicle.
  • Fee for lien recording. If you have a lien on the car (also known as a loan), the DMV may charge you to record that lien on the title.
  • Documentation fee. Car dealers usually charge their own fees to do all the vehicle purchase paperwork. Some states cap these fees.
  • Sales tax. Most states charge tax on car sales. We list the tax rate by state later in this article, though your city or county government may also add their own sales tax.
  • Personal property tax. Some states require you to pay an annual tax on the value of your vehicle. We will review the vehicle property tax for each state in the table below.
  • Emissions/inspection fees. States generally require a vehicle to be inspected when you buy it and may also require emissions testing.
  • Hybrid/electric vehicle rates. Since hybrid/EV owners pay little or no fuel tax, many states charge additional fees.

Car sales tax

Although tax rates vary by state and city, the formula for calculating car taxes is: Purchase price multiplied by sales tax percentage. The sales tax you pay is based on your municipality’s car tax regulations, and is generally not influenced by whether the car is new or used.

Suppose the tax to your car sales is 6 percent and that the purchase price of the car is $20,000. Using the formula, we have that the sales tax would be $20,000 times 6 percent, which equals $1,200.

Car sales tax by state in 2020

As you may have already concluded, owning a vehicle is expensive from the day you buy it to the day you stop driving it. In addition to paying cash for the car or having to make monthly payments, you have to worry about gas, insurance, maintenance and repairs.. However, even before you drive your car off the lot, you often have multiple fees to pay, including sales tax.

However, some states are more lax in their minimum sales tax requirements, and a handful charge no sales tax at all. Next, let’s explore the different auto sales tax rates at the state level across the United States.

There are some states that do not charge tax on car sales. These states are Delaware, Montana, New Hampshire, and Oregon.

There are even fewer states that have minimum sales tax rates below 5%. Those states are North Carolina, which has a minimum tax rate of 3%, and Hawaii, which has a sales tax rate of 4.5%.

But nevertheless, most states they have tax rates that range between 5% and 10%.

Condition Maximum sales tax (%) Average DMV Fees Sales Tax Credit Trade? Are incentives taxed? Document Fee Limit Average documentation fee
Alabama 11.00 $363 Yes Yes Unlimited $499
Alaska 7.50 $100 Yes No Unlimited $200
Arizona 11.20 $532 Yes No Unlimited $429
Arkansas 11.25 $34 Yes Yes $129 $129
California 10.25 $296 North Yes $80 $80
Colorado 11.20 $598 Yes Yes Unlimited $598
Connecticut 6.35 $107 Yes Yes Unlimited $499
Delaware 0.00 $1,553 Yes No Unlimited $292
D.C. 5.75 $124 North Yes Unlimited $300
Florida 8.00 $294 Yes Yes Unlimited $799
Georgia 8.90 $2,465 Yes Yes Unlimited $599
Hawaii 4.50 $108 No Yes Unlimited $245
Idaho 9.00 $62 Yes Yes Unlimited $299
Illinois 11.00 $196 Yes Yes $169 $169
Indiana 7.00 $21 Yes Yes Unlimited $198
Iowa 7.00 $365 Yes No $180 $180
Kansas 10.60 $47 Yes No Unlimited $399
Kentucky 6.00 $21 No No Unlimited $450
Louisiana 11.45 $138 Yes No $200 $200
Maine 5.50 $873 Yes Yes Unlimited $499
Maryland 6.00 $258 No Yes $300 $300
Massachusetts 6.25 $135 Yes No Unlimited $395
Michigan 6.00 $259 No Yes $210 or 5% of the sale price, whichever is less $210
Minnesota 8.38 $464 Yes No $75 $75
Mississippi 8.00 $39 Yes Yes Unlimited $260
Missouri 10.10 $45 Yes No $199.99 $199
Mountain 0.00 $577 North No Unlimited $299
Nebraska 7.50 $571 Yes No Unlimited $299
Nevada 8.27 $550 Yes Yes Unlimited $499
New Hampshire 0.00 $60 Yes No Unlimited $372
New Jersey 6.63 $133 Yes Yes Unlimited $399
New Mexico 9.06 $65 Yes Yes Unlimited $339
New York 8.88 $86 Yes Yes $75 $75
North Carolina 3.00 $88 Yes Yes Unlimited $599
North Dakota 8.50 $103 Yes Yes Unlimited $299
Ohio 8.00 $39 Yes Yes $250 or 10% of the sale price, whichever is less $250
Oklahoma 11.50 $107 Yes No Unlimited $299
Oregon 0.00 $187 Yes No $115 or $150 if filed electronically $75
Pennsylvania 7.00 $87 Yes No $113 or $134 if filed electronically $134
Rhode Island 7.00 $32 Yes No $200 $220
South Carolina 9.00 $39 Yes Yes Unlimited $350
South Dakota 6.50 $48 Yes Yes Unlimited $129
Tennessee 10.00 $35 Yes Yes Unlimited $500
Texas 8.25 $94 Yes No Unlimited $150
Utah 8.60 $154 Yes No Unlimited $299
Vermont 7.00 $70 Yes No Unlimited $180
Virginia 7.00 $53 No Yes Unlimited $599
Washington 10.40 $57 Yes Yes $150 $150
West Virginia 7.00 $40 Yes Yes $175 $175
Wisconsin 5.60 $145 Yes Yes Unlimited $229
Wyoming 6.00 $659 Yes No Unlimited $500

Factors that can reduce the price of the vehicle

Basically, there are certain factors that reduce the net sales price on which your tax is calculated. For example, if you trade in a vehicle, the exchange subsidy subtracted from agreed price in some states. Therefore, when negotiating your agreement, it is better to have the value of the car as a trade-in factor rather than selling it separately, in which case the allowance does not apply.

Let’s say the dealer offers you a $5,000 trade-in allowance on a $20,000 vehicle and you participate in a $1,000 rebate offer. The formula below to calculate the sales tax base is $20,000 less deductions of $5,000 and $1,000, which equals $14,000. Now multiply $14,000 by the 6 percent tax rate, and the total sales tax is $840.. By reducing your tax base, you save $360 in sales tax.

Additional costs you should take into consideration

As we have explained above, in addition to sales tax, you must also pay vehicle registration and license fees. When you buy a car through a dealer, you pay these fees directly to the dealer as part of the sales agreement, and the dealer processes the paperwork. Instead, in a private sale, you file these documents with your local vehicle tax office and pay taxes, title, and registration fees at that time.

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