Sales tax rates fall under the control of the state. Consequently, sales tax rates vary from state to state. Sales tax is usually paid to the seller at the time of a sale. If you purchase a car from a dealer, the sales tax is included in the total owed to the dealership, and they in turn take care of paying the state. When purchasing a car from a private party, however, sales tax is not paid to the seller but is instead collected by the state’s Department of Motor Vehicles when the car is registered.
Some states give car buyers a bit of a sales tax break by charging sales tax only on the difference between the purchase price of your new vehicle and the trade-in value of your old vehicle. For example, let’s say you trade in your old car for $10,000 and put that money toward the purchase of a new, $25,000 vehicle. Instead of paying sales tax on the full $25,000 purchase price of your new car, you would only have to pay tax on the difference of $15,000.
Which Tax Rates Apply?
Not all states have a sales tax. Currently, there are five states with no sales tax: Delaware, Alaska, Oregon, New Hampshire and Montana. Sales tax, though, must be paid in the state in which you can legally register your vehicle. So, even if you were to purchase a vehicle in one of these tax-free states, you would still be required to register the vehicle and pay the applicable sales tax in your home state.
Can You Avoid Paying Sales Tax?
To register a vehicle in a state, you must have an address or residence in that state. In theory, it would be possible for someone with a primary residence in New York but a second home in New Hampshire to register the vehicle in New Hampshire because of its tax-free status. Anyone considering something like this should be careful, though, as laws have become more restrictive about people attempting to avoid paying sales tax in this manner. The state of your primary residence may still try to collect sales tax on a purchase like this. They may also charge a fine or fee for failing to register the vehicle in your home state in a timely manner, or, in extreme cases, you could also be charged with tax evasion.
What Is The Tax Rate?
Among states that charge sales tax, the tax rates range from a low of 4.5% in Hawaii to a high of 11.5% in Arkansas. If you would like to know the sales tax rate for your state, you may want to check out Edmunds: What Fees Should You Pay?. This link provides not only state by state sales tax rates, but also additional information regarding the fees charged by each state to register a vehicle, whether or not the state taxes the full amount of the car or only the difference between the purchase price and trade-in value, if the state taxes incentives or not, and if there is a limit on the document fees dealers can charge.
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