5 States With 0% Sales Tax on New and Used Car Sales

Many people who own cars are well aware of the sales tax on car sales. The sales tax can add hundreds, and sometimes thousands, of dollars to your bill. Where car owners live will determine how small or big their car sales tax bill is as states determine the rates on new and used cars. So, which states have the lowest, at times zero, sales tax rates?

What is the tax on car sales? 

Car test and tax paperwork received through the mail
Car test and tax paperwork | Peter Dazeley/Getty Images

When you are looking to buy a car, it is essential to consider sales tax when calculating your budgetary limits. The sticker on the window does not always reflect the total cost, which includes all the fees. Don’t get caught off guard, and always remember the possibility of sales tax. 

What is sales tax? According to Autolist, “Sales tax is the fee state and local governments require vendors to collect from customers upon selling goods. Sales taxes differ from excise taxes, which are flat-rate taxes you pay when you buy a specific good, such as motor vehicle fuel or materials to make a product.”

Assuming your state requires a sales tax, you can calculate an estimation for yourself as you consider a vehicle. First, check your state’s tax rate. You will pay the rate of the state where your new vehicle is registered. So, you can buy a car in one state but then pay the rate of the state where you’re going. Multiply the correct tax rate by your vehicle’s purchase price. Add that number to the purchase price so you have a good handle on what you will be paying.

5 states have a 0% sales tax rate 

Yes, five states in the United States do not charge a sales tax on the purchase of a new or used car. These five states are:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

It may seem smart to travel to one of the five states with 0% car sales tax to buy your car. However, you should remember that you pay sales tax based on where you live and register the vehicle. You could buy your car in Oregon but then have to pay the sales tax assessed in Idaho, where you register the vehicle. 

Many states allow local and county governments to impose their own sales taxes. Different cities and counties can also choose what to charge. So, you could move one county or city over and pay a new sales tax amount when you register your car in your new home. 

Florida is an interesting state because if you purchase your car in a 0% sales tax state, you can use that to your advantage in Florida. Florida only collects the sales tax that would be charged in the out-of-state resident’s home state. If the out-of-state resident is from a state that charges more than Florida, then Florida gives a partial exemption and only charges 6%.

The most important thing to remember is to check with the state where you will register your new vehicle and that rate to make calculations. Chances are you will be buying your car in your state of residence, so that won’t be a problem. Also, check with your local and county governments to see what they charge as well. 

These states have the highest sales tax rates 

Related How to Legally Not Pay Sales Tax on Used Cars

How to Legally Not Pay Sales Tax on Used Cars

Now that you know which states charge zero sales tax on new and used car purchases, you probably want to know which states have the highest rates. According to Find the Best Car Price, these five states have the highest rates: 

  • California (7.25%)
  • Indiana (7%)
  • Kansas (7.5%)
  • Rhode Island (7%)
  • Tennessee (7%)