When buying a used car, one of the questions you need to ask yourself is, “do I have to pay sales tax on used cars?”. And if you are buying a car from a private seller, this is something you will have to figure out alone, while with the dealer, most of the paperwork will be handled by them.
Do I have to pay sales tax on a used car? You have to pay sales tax on a used car. Furthermore, you will have to calculate your taxes alone and submit the documentation when registering a car. On the other hand, if you bought a car from a dealer, sales taxes will be added to your final bill.
Still, rules and regulations vary from state to state, and when making an out-of-state car purchase, you need to be really careful and know what you are doing. Keep reading and find out all about sales taxes when purchasing a used car.
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What Are Sales Taxes?
The sales taxes are also called consumption taxes, and they are imposed by the government on the sale of goods and services. So naturally, when you buy a used or new car, you will have to pay certain compensation to the state on that purchase. This tax is calculated as a percentage of the amount of money involved in the transaction.
How Much Is an Average Sales Tax
As you know, taxes depend on the state and county you live in, and it is the same when it comes to sales taxes. Still, you can use an average number to get an approximate amount you will have to pay in taxes. The national average is around 5.7% of the car price. Still, in some states, this number can be lower, around 3%, or higher, about 8%. At the same time, some states don’t have sales taxes at all. Here is a list of the US states and their sales taxes in 2022.
| State | Sale tax rate |
| California, Indiana, Mississippi, Rhode Island,Tennessee | From 7% to 7.25% |
| Minnesota, Nevada, New Jersey, Arkansas, Kansas, Washington, Connecticut, Illinois, Massachusetts, Texas, Florida, Idaho, Iowa, Kentucky, Maryland, Michigan, Pennsylvania, South Carolina, Vermont, West Virginia | From 6% to 6,88% |
| Utah, Ohio, Arizona, Maine, Nebraska, Virginia, New Mexico, North Dakota, Wisconsin | From 5% to 5.95% |
| North Carolina, Oklahoma, South Dakota, Louisiana, Missouri, Alabama, Georgia, Hawaii, New York, Wyoming, Colorado | From 2.90% to 4.75% |
| Alaska, Delaware, Montana, New Hampshire, Oregon | Don’t have a sales tax. |
Am I Paying a Sale Tax to the State Where I Bought a Car or Where I Live?
This is something that confuses many people who wish to buy a car from one state and live in another. But in essence, the rule is simple. You pay sales tax to the state where you register a car. So, if you bought a car from a person in Idaho and you live in Utah, you’ll pay sales tax in Utah. On the other hand, if you buy a car from a dealer, the sales tax will be included in the price, and the taxes will be paid to the state where the purchase has happened. There is also a fee called personal property tax on vehicle ownership, and it is a tax you will probably have to pay to the state you are living in once a year.
How to Calculate Sales Tax on a Used Car?
Knowing how much sales tax is in your state is not enough. You will have to do some math or find someone to do these calculations for you. As we mentioned, if you purchase a vehicle from a dealer, he will calculate this into a final bill. But if this is not the case, you will have to use a calculator alone. Fortunately, the math is simple – take your state tax rate and multiply that number by the price of the car, and then divide everything by 100.
Tax Obligations Differ When You Sell a Car
If you are a seller and you decide to sell your pre-owned car for less money than you bought it for, the IRS will consider this a capital loss and not impose any taxes on you. The rules are pretty different when you decide to sell the vehicle for a higher price than you bought it for – this will be considered a capital gain or profit and will be something the IRS will look up.
On the other hand, if you are a buyer and decide to purchase a used car, you will have to pay sales taxes because you are becoming an owner of something valuable. However, you will not pay taxes to your dealer or the person you buy a car from but to your DMV when you register a car. But tax is not the only fee that will be added to your car price. Here are other fees you can count on:
- Title Transfer Fees,
- Registration and Licensing Fees,
- Insurance fees.
So, Do I Have to Pay Sales Tax on a Used Car?
The simple answer is yes, and even if you buy a car in a state without sales taxes, you will still have to pay once you register a car in your state. There may be ways to avoid paying sales taxes, but their legality is debatable. Also, keep in mind that most states have their own rules and exceptions when it comes to sales taxes, so before you purchase any vehicle, you must get all the information about the rules and, most importantly, your obligations. You don’t want to end up paying double in fees and fines in the end. After all, remember that the only things you can not escape in this life are death and taxes.
