When purchasing a used car, it's important to be aware of the taxes and fees that may apply. In most states, you'll have to pay sales tax on the purchase price of the car. The amount of tax you'll owe will depend on the state in which you live, as well as the purchase price of the vehicle.
By understanding the taxes and fees that apply to used car purchases, you can avoid unpleasant surprises down the road.
The Benefits of Purchasing From a Private Party
Whether you're the buyer or seller in a private auto transaction, cutting out the dealership has a lot of perks. When buying a used car from a private seller, you'll likely pay much less than you would at the dealership. Plus, selling your own car privately can net you much more than a dealership would offer for a trade-in.
Buying from a dealership does have certain conveniences, such as assistance with sales tax figures. Tax laws on private sales of used cars can vary from state to state. Still, buying or selling a car privately has several perks a dealership can't offer.
When you buy a new-to-you vehicle, whether at the dealership or from a private party, the price in the window is just one of many considerations when figuring out the real cost of car ownership. You'll have car insurance, fuel, and maintenance costs to calculate, which can boost your monthly outlay.
If you have a car budget you want to stick to, do a bit of research prior to purchasing so you understand all of the potential fees and costs beforehand.
Who Pays Sales Tax When Selling a Car Privately?
In any used car transaction, the buyer is responsible for paying taxes and fees. In states that levy a sales tax on cars, the buyer pays the sales tax. Other taxes and fees might include:
1. Registration fees. The buyer must register the vehicle and pay registration fees to the Department of Motor Vehicles (DMV) or equivalent motor vehicle registry authority.
2. Title transfer fees. The buyer will need to transfer the title of the car into their name, and the DMV will charge a fee for this service.
3. Smog certification or emissions inspection fee. In some states, the buyer must provide proof of smog certification before registering the vehicle. This will involve an emissions inspection and a fee for the certification.
4. Vehicle history report fee. The buyer can purchase a vehicle history report to check for any previous accidents, damage, or a salvage title. This will involve a fee for the report. (PrivateAuto provides a vehicle history report for all premium listings as a value add to the seller; obviously, the buyer benefits from this as well.)
5. License plate fee. Except for Minnesota and California, the buyer will need to get new license plates and pay the associated fee. In some states, the license plate fee is included in the registration fee.
Bottom line: do your research so you're not caught by surprise by taxes and fees. Factor them into your budget when shopping for a used car, and you'll avoid sticker shock.
What Vehicle Taxes and Fees are Owed?
A lot of states, counties, and cities charge car taxes whenever you purchase a car. Some have a tax for vehicle ownership. You may even have to pay a tax to both your state and your municipality. The most common taxes associated with vehicle purchases include:
- Personal property
These taxes are often calculated based on the objective value of the vehicle, so knowing the specific rules that apply to you based on where you live can help you calculate your tax rate.
Some of the rules that apply to vehicle taxation might be determined by where you drive your car the most or where it's registered. Regardless, it is normally based on the value of the car. Sometimes, if you're not in agreement with a tax assessment, you might be able to challenge it. Knowing what you may have to pay prior to purchase helps you plan for associated fees and decide if a specific vehicle purchase fits into your budget.
Recommended Reading: How to Get a Bumper-to-Bumper Warranty on a Used Vehicle
Let's take a closer look at the types of vehicle taxes mentioned above.
Depending on where you live, when you buy a used car from a private party, you will probably be responsible for sales tax. In some places, a use tax also applies. Sales taxes are typically payable anytime a car's ownership changes. This applies to purchases from both dealerships and private parties. Some states do offer exemptions to this rule when cars are transferred between family members or the transferee receives the vehicle as a gift.
States That Don’t Charge Sales Tax on Car Purchases
In most states, you'll not only have to pay sales tax on the purchase price of the vehicle, but you may also be required to pay additional taxes and fees for things like registration and title transfer. However, there are a few states that don't charge sales tax on car purchases.
These states include:
- New Hampshire
If you're planning on buying a car in one of these states, you may be able to save yourself a significant amount of money. Just be sure to factor in any other taxes and fees that may apply so that you can get an accurate estimate of the total cost of your purchase.
Sales Tax is Based on Your State of Residence
You can't get around paying sales tax by driving to a state that doesn't have it and buying a car there.
States require that you pay sales tax on your car when you register it, regardless of where you purchased it. Most states have reciprocal agreements with neighboring states, so you will still be required to pay sales tax if you live in a state with sales tax and purchase a car in a state without.
Say you live in Washington state and you drive to Oregon (no car sales tax) to purchase a used vehicle from a private party. Buying the car in Oregon does not get you around paying Washington sales tax once you go to register it in Washington.
You'll need to follow the tax laws applicable to the state in which you register the vehicle. When you purchase from a dealership, taxes are due before the car leaves the lot. In a private party sale, you'll pay sales tax when you register your new-to-you vehicle.
Recommended Reading: 3 Steps to Replacing a Lost Car Title
Personal Property and Excise Taxes
Some states annually charge a personal property tax based on your car's current value. There are some cities in the United States that also tax vehicle owners annually. For instance, if you live in Boston, your yearly excise tax for a car worth $25,000 would be $650, or $25 for every $1,000. This is on top of the auto sales tax charged by the state of Massachusetts.
How Are Car Taxes Calculated?
As seen here, vehicle taxes are influenced by many factors. Normally, you simply multiply your state's sales tax rate by your car's value. The specific formula you use depends on the type of tax (sales, property, use, or excise) and the state or city tax rate. Try our used car sales tax calculator to see how it works!
Generally, vehicle sales tax is based on the vehicle purchase price. Other factors — like whether it's a car, truck, or SUV, along with the weight of the vehicle — can also affect the tax rate. If there are special accessories that come with the car, you may need to pay sales tax on those, as well.
Sales Taxes are Unavoidable
Unless you're buying your used car in a state that doesn't charge sales tax on cars, you'll have to pay sales tax in some manner when you buy from a private seller. Read up on the laws for your city and state to get a better idea of just how much you'll owe. You can start at the Department of Revenue website for your state. The Department of Motor Vehicles is also a great place to research.
Do You Have to Pay Taxes On a Car You Buy From a Private Owner?
Buying a used car from a private seller has a lot of benefits over going to the dealership. Unfortunately, there are no tax benefits involved. You pay the same used car sales tax on your purchase, regardless of who you bought the vehicle from. So sad.
Do You Have to Pay Sales Tax When Buying a Car From a Family Member?
When buying a car from a family member, you'll still need to pay sales tax if you live in a state that has car sales tax. The tax law does not differentiate by your familiarity with the seller.
If said family member is gifting the car to you, that's another matter, and your state's gifting laws will apply. To learn more, this article about transferring a car title between family members should help.
PrivateAuto Makes Used Car Transactions Easy
So, are you in the market for a new-to-you vehicle? PrivateAuto is safe and reliable. We make it easy to buy or sell a car privately. Some of our features include:
- Make offers on multiple vehicles
- Communicate without sharing your personal information
- Send unlimited funds, instantly any time
- Test drive scheduler
- State documents ready to sign, including an official bill of sale
- Electronic signatures
- Tips for selling or buying privately in your state
Browse our used car listings and drive your new vehicle home today.
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Car Taxes FAQ
Do you have to pay taxes on a used car in Nevada?
Whether you're purchasing a new car or a used car, you'll be required to pay sales tax in the state of Nevada. The current state sales tax rate is 4.6%, but you may also be subject to additional county or local taxes. In total, it's important to budget for around 5% of the purchase price in taxes.
Sales taxes are not charged on private party vehicle sales, family sales or gifts. However, there are still some important requirements that must be met in order for the sale to be exempt from tax.
For example, both the buyer and seller must complete an affidavit attesting to the fact that the sale qualifies for the exemption. Additionally, the vehicle must have been owned by the seller for at least 12 months before it can be sold tax-free.
Keep in mind that you'll also need to pay for other taxes and fees including car registration, auto insurance, and car title fees when you purchase a car in Nevada. Fortunately, there are a number of ways to save on car ownership costs in the state.
For example, many counties offer discounts on car registration fees for seniors and military members. You can also take advantage of fuel tax credits if you drive an alternative fuel vehicle. With careful planning, you can minimize the financial impact of owning a car in Nevada.
Do I have to pay sales tax on a used car in Arizona?
In Arizona, used cars are subject to a sales tax, which is levied by the state government. Although it’s not the highest, Arizona has a statewide vehicle sales tax of 5.6%. Add on county or municipal sales tax rates, and you may end up paying 6.3% or higher.
If you purchase a used car in another state but are a resident of Arizona, you will owe a use tax when you register the vehicle at the Arizona DMV. However, if you paid sales tax or excise tax at the time of purchase, your use tax liability may be reduced.
Who pays sales tax when selling a car privately in NJ?
Personal vehicle sales in New Jersey are not subject to the state's 6.625 percent sales tax if the seller does not hold a motor vehicle dealer license.
According to the New Jersey Division of Taxation, if you buy a car from a private seller in New Jersey, you don't pay any sales tax. You'll pay the 6.625 percent state car sales tax when you bring the title to the New Jersey Motor Vehicle Commission to transfer and register the vehicle.
If you purchase a vehicle from an out-of-state dealer, you'll also pay the difference between your home state's sales tax rate and New Jersey's when you register the car in NJ. And, as with all vehicle purchases, there is also a $60 registration fee and a $5 title certification fee.
So, while there may be some added cost to buying a car from out of state, you can avoid paying sales tax on a private sale by completing the transaction within New Jersey. If you are buying a car from a dealer in another state, be sure to ask about the used car warranty and extended warranty options that are available.
How to avoid paying sales tax on a used car?
One way to avoid paying sales tax on a used car is to live in one of the five states that have no sales tax on cars: Alaska, Delaware, Montana, New Hampshire, and Oregon.
If you live in a state with sales tax and you purchase a car from a state with no car sales tax, you may be able to avoid paying sales tax by taking advantage of an exemption for buying a car out of state. Exemptions typically apply if you are military personnel stationed in another state or if you are a student attending school in another state. You may also be eligible for a tax credit if you purchase a hybrid or electric vehicle.
Most tax-free options are not genuinely avoiding tax payments, but act as more of reimbursement of taxes paid. Here are the three most common ways to "avoid" paying sales tax on a car:
- Buy in one of the states with no sales tax on cars
- Take advantage of sales tax exemptions
- File for tax credits
How to avoid paying sales tax on a used car in California?
In order to avoid paying sales tax on a used car transaction in California, you must provide proof that the car was acquired as a gift or pursuant to a court order.
This can be done by entering the word "gift" on the back of the title and completing a REG 256 form. If you are buying a car from someone who has already paid sales tax on it, you may also be eligible for an exemption.
Another exemption is for court orders; if the vehicle was transferred as part of a divorce decree or other court order, the buyer can present the court order to avoid paying sales tax.
How to avoid paying sales tax on used a car in Florida?
Florida collects a six percent sales tax on the purchase of all new or used vehicles. The Florida Department of Highway Safety and Motor Vehicles recommends that when you purchase a car from a private owner, you complete the transaction at the tax collector's office. The staff at the tax collector's office can offer you feedback and make sure that you have paid the correct amount.
If you can provide proof that you used the car for at least six months out of state before registering it in Florida, you will not be required to pay any Florida use tax. However, if you cannot provide this proof, you will be expected to pay Florida's six percent use tax. This rate typically applies to cars that are being registered in the state of Florida, even if they were purchased elsewhere.
That said, if you paid any state and local taxes where you purchased the vehicle, Florida law will credit you for the use tax and discretionary sales surtax amounts that you paid.
So, if you have documentation of the taxes you paid at the time of purchase, be sure to bring it with you when registering your vehicle in Florida. By doing so, you can avoid paying double taxes on your used car purchase.
How to avoid paying sales tax on a used car in Massachusetts?
According to Massachusetts tax laws and Department of Revenue policies and procedures, Massachusetts has a sales and use tax on buying or transferring motor vehicles or trailers.
Paying sales tax on a used car in Massachusetts can be avoided if the transfer of ownership is considered a gift. In order for this to be the case, neither party can have made or received any payment related to the transfer, and both parties must have intended the transfer to be a gift from the outset.
Additionally, neither party can assume any debt related to the vehicle, and the donor must have paid any Massachusetts vehicle sales or use tax before making the transfer. If all of these criteria are met, then the transfer of ownership will be tax-exempt.
If the car is being transferred to or from a business entity, the sale is usually taxable. However, there are some exceptions. For example, the sale is exempt if it qualifies as a "reorganization" under I.R.C. s. 368(a)(1).
Additionally, the sale is exempt if it is for forming a partnership or corporate trust, or for organizing a corporation, solely in exchange for ownership interest in the enterprise.
Finally, the sale is exempt if it is to an owner of a business entity solely in exchange for the owner's interest in completely closing a partnership or corporate trust, or on the complete liquidation of a corporation. If you are unsure whether or not your sale qualifies for an exemption, be sure to consult with an experienced tax professional.
How to avoid paying sales taxes on a used car in Arkansas?
If you're looking to avoid paying sales tax on a used car purchase in Arkansas, there are a few options available to you. If you're buying a car under $4,000, you won't owe sales tax.
There are also exemptions for certain types of organizations, including non-profit charities and religious groups. Finally, if the car has been gifted to you by someone else, then sales tax will not be applicable.
However, it's important to note that these exemptions only apply to used cars—if you're buying a new car, then sales tax will be due regardless of the price. By knowing the rules and regulations in advance, you can avoid any stressful surprises down the road.
How to pay sales tax on a used car?
In most states, you'll need to pay sales tax on a used car just as you would for a new one. The tax is based on the purchase price of the motor vehicles, and it's generally calculated as a percentage of that amount.
In some states, the tax is charged upfront, while in others it's added to your license plate fee when you register the car. If you're buying a car from an individual seller, you'll usually need to pay the tax yourself and then file for a refund if the seller has already paid it. To calculate the tax, you'll need to know your state's sales tax rate and the purchase price of the vehicle. For example, let's say you live in a state with a 6% sales tax rate and you're buying a used car for $15,000. The sales tax would be 6% of $15,000, or $900.
Some states also charge a motor vehicle excise tax, a personal property tax or other taxes on vehicle purchases.
Depending on your location, you may have to pay more than one type of tax after buying a car, including sales tax, excise taxes, and title taxes. Sales tax is usually based on the purchase price of the car. Excise taxes are typically levied by the state or local government, and they are usually based on the vehicle's weight or engine size. Title taxes are usually imposed by the state Department of Motor Vehicles, and they are based on the value of the car.
When you purchase a new car, there are a number of additional fees and taxes that you need to budget for. These can include a documentation fee, registration fee and sales tax.
How to avoid paying sales tax on a used car in NY?
If you're planning on purchasing a used car in New York, there are a few ways you can avoid paying sales tax.
- If the vehicle is a gift from a family member, you will not be required to pay sales tax.
- If you paid out-of-state sales tax when you purchased the car, you can apply for a refund of the difference.
- If you were not a resident of New York when the vehicle was purchased, you may be exempt from paying NY car sales tax.
- If you are a member of the U.S. Armed Forces or you are not a resident of the state of New York, you may also be exempt from paying sales tax.
Keep in mind that these exemptions may vary depending on your individual situation, so it's always best to check with the New York DMV before purchase.
Who pays sales tax when selling a car privately in Texas?
In a Texas private-party sale, the buyer is responsible for paying the 6.25% Texas state car sales tax. Additional taxes and fees are also the responsibility of the buyer.