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 purchase so you understand all of the potential fees and costs beforehand.

Where, Why, and How are Vehicle Taxes Calculated?

A lot of states, counties, and cities charge car taxes whenever you purchase a car. Some even 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:

  • Sales
  • Excise
  • Personal property

These taxes are often calculated by how much your car is worth, 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.

Sales Taxes

Depending on where you live, when you buy a used car from a private party, you most likely will be responsible for sales tax. In some places, a use tax 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.

Say you live in Washington state and you drive to Idaho to purchase a used vehicle from a private party. Just because you buy a car in another state, that won't negate sales tax. You'll need to follow the tax laws applicable to the state in which you plan to 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.

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.

The Bottom Line

When buying a used car from a private seller, you'll have to pay sales tax in some manner. 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.

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:

  • Advertise until sold
  • Communicate without sharing your personal information
  • Easily manage and respond to offers
  • Test drive scheduler
  • State Documents ready to sign
  • Electronic Signatures
  • Tips for selling or buying privately in your state

Browse our listings and drive your new vehicle home today.