The car sales process is interesting, to say the least. First, you decide on the type of car you want. Then you decide on its amenities and the color. Finally, you find the seller that offers you the best price, service, and support after the sale.
This sounds simple enough. However, when you add the car sales tax in, things get a little complicated. Even when the negotiated purchase price was lower than expected, you’ll probably be in for a surprise when it’s time to sign the papers.
The good (or bad) news, depending on how you view it, is that different states have varying car sales tax rates. Some don’t charge any at all. To help you figure out where you stand, let’s look at the states with the highest sales tax rates.
What exactly is car sales tax?
Sales tax is the fee local and state governments require vendors to charge customers when they sell goods. Usually, it’s a certain percentage of the sales price.
Let’s say you bought a car for $5,000, and your state charges a 2% sales tax. You’ll pay an additional $100 to your state’s DMV.
It’s also important to note that the states that charge state sales taxes usually charge local taxes as well. So, let’s say New York has a state sales tax rate of 4%. However, adding local and county taxes puts an additional 4.5% on the price. This means you’ll pay approximately 8.5% of your car purchase price.
Additionally, each state has its own car tax rate because of the specific way it generates revenue. Some states, like Maine, also collect an excise tax based on the vehicle’s mileage and other factors. They usually add this to the registration fee.
The 6 states that charge the most vehicle sales tax
According to Shift, there are six states with higher tax rates than the others:
6. Rhode Island – 7%
5. Indiana – 7%
4. Tennessee – 7%
3. California – 7.25%
2. Kansas – 7.5%
1. Nevada – 8.5%
5 states with no car sales tax
According to Autolist, here are five states that don’t charge car sales tax (or 0%) on new or used car sales purchases:
- New Hampshire
Can I take advantage of the 0% car sales tax?
Unfortunately, unless you’re a resident of one of the five states, you can’t take advantage of their lack of taxes. You pay sales tax to the DMV of the state you wish to register a vehicle in, not the state in which you bought the car. Therefore, purchasing a vehicle in a state with 0% car sales tax and driving it back to your home state isn’t an exploitable loophole for car shoppers.
How to reduce your tax burden
There are a couple of ways to reduce your tax burden:
- There are state and federal tax incentives and credits for buying an electric vehicle. You won’t be able to apply them at the time of purchase, but you’ll see the difference later. It’s also important to note that at the state level, incentives and credits vary, so make sure you research before signing the dotted line.
- Buy a classic car made before 1973
- Move to a state with no car sales tax within three months of purchasing your car.
Buying a car is exciting. However, it gets complicated when you live in one of the states with high sales taxes for new and used vehicles. Knowing your state’s car sales tax rate before you buy will help you better understand what you’ll owe when it’s time to sign the papers. You could even use this information to negotiate an even lower selling price.