When buying a used car in Iowa, don’t get caught off guard by the state’s vehicle sales tax. Vehicle sales tax rates in Iowa are 5%.
Unlike many other states, Iowa doesn’t have local sales tax; 5% is the most car sales tax you’ll pay.
Keep reading to get the full scoop on Iowa sales tax liabilities for your used vehicle purchase.
Do you Pay Taxes When You Purchase a Car From a Private Party in Iowa?
When buying a vehicle in Iowa, you’ll pay 5% of the vehicle’s sales price, whether buying from a private seller or a car dealer. Iowa's sales tax law does not discriminate between the two.
Unless you qualify for a tax exemption (discussed below), you are required to pay tax on your vehicle purchase.
How is Used Car Sales Tax Calculated in Iowa?
Motor vehicle sales tax is a percentage of a car's purchase price owed to the state of Iowa when you buy a car and register it with the Iowa Department of Transportation (DOT).
The Iowa Department of Transportation establishes what the car is worth on the open market (its fair market value, or FMV) by referring to Kelley Blue Book, NADA, or other reliable sources on used car prices.
If the DOT concludes that the car's FMV is significantly greater than its purchase price, they can opt to base tax on the Kelley Blue Book or NADA assessed value.
Please note that underreporting the purchase price of a vehicle in order to avoid paying sales tax is illegal.
What If I Paid Sales Tax in Another State?
If you paid sales tax on the purchase of a vehicle in another state, Iowa deducts that tax so that you are not taxed twice. There are four potential scenarios.
- You paid exactly 5% sales tax in Wisconsin (which has the same tax rate); Iowa will give you a pass.
- You paid no sales tax in another state, in which case you owe the full 5% Iowa sales tax rate. Let's say you bought a used car in Montana and didn’t pay any sales tax, given Montana’s 0% tax rate. You’ll pay Iowa’s full 5% use tax.
- If you paid less than 5%, in which case you will have to pay the difference.
- You paid more than 5% in the other state (for example, Minnesota levies a 6.5% tax on every used vehicle purchase). We wish we could tell you that Iowa will give you a refund, but no. At least they won’t charge you any more tax.
How to Pay Iowa Car Sales Tax
Here's how to pay the sales tax owed after buying a vehicle from a private seller in Iowa:
- To transfer ownership of the vehicle, you and the seller must complete the necessary paperwork, including the bill of sale (when you buy a used car on PrivateAuto, we provide an official Iowa bill of sale and prompt both of you to sign it in our app at the appropriate stage of the transaction process). You'll need the following documents to transfer car ownership in a private transaction:
- The original car title.
- Proof of Iowa insurance.
- Valid driver’s license or ID.
- Calculate the amount of sales tax due (multiply the vehicle's purchase price by 5%).
- Submit payment for all taxes and fees.
- Get your vehicle registration, title, and new license plates. Once you've paid the sales tax and turned in the necessary paperwork, you'll get your new registration and title for the car. The title and registration will show that you bought the car and that the sales tax has been paid. You will get your new license plates by mail.
How to Avoid Paying Sales Tax on Vehicles in Iowa?
Motor vehicle taxes are something you can't avoid—they are a part of our lives. You are required by Iowa law to pay sales tax on private party used vehicle purchases unless you meet an exemption.
Iowa Sales Tax Exemptions
Vehicle sales taxes apply to everybody but the following:
- Purchases by qualifying nonprofit organizations or educational institutions.
- Vehicles purchased for use by qualifying government units or governmental corporations.
- Vehicles purchased for use by disabled persons.
- Vehicles purchased for use by farmers.
Is Purchasing a Car from a Dealer Better?
A lot of people mistakenly believe that buying a car from an Iowa dealer saves money. The opposite is true: going to an Iowa dealer costs you more money, and it's a pain—unless spending 3 hours in an Iowa dealership is your idea of a good time.
- Dealerships charge documentation fees above and beyond all the other Iowa taxes and fees you have to pay (the other taxes and fees are exactly the same whether you buy from a dealer or a private seller, by the way). An average documentation fee in Iowa is $135.
- Used car dealerships charge higher prices. Their business model is based on buying low and selling high to generate the spread that keeps them in business. To get the best deals, skip the middleman and go directly to private sellers.
We do admit that dealers bring a certain amount of convenience that you don’t traditionally get in private sales. In fact, that’s why we exist. PrivateAuto gives you dealer-like convenience in the palm of your hand while allowing you to transact peer-to-peer with regular folks like yourself.
By shopping for used vehicles from private sellers on PrivateAuto, you avoid doc fees and get lower prices.
Iowa Sales Tax Calculator
If you're in the market for a used vehicle, you'll want to calculate the applicable sales tax. With the PrivateAuto used car sales tax calculator, estimating sales tax has never been easier. This free online car sales tax calculator calculates the amount of tax you must pay on a used car purchase based on your sales tax rate (5%) and the vehicle's price.
License Plates, Title And Registration Fees in Iowa
In addition to the state vehicle sales taxes, you owe other fees when buying a car and registering it in Iowa, such as a registration fee and a vehicle title transfer fee.
To register your vehicle at an Iowa county treasurer’s office, you must show proof of valid car insurance. The first time you register a passenger car, you will need to do the title transfer, which will cost you $25.
According to the Iowa treasurer's office, this is how you calculate the registration fees:
The formula is calculated as follows: $0.40 per hundred pounds of vehicle weight, plus
Example: Weight: 3,000 pounds, list price: $18,500
A numbered regular plate with an emblem costs $45. A personalized plate costs $60 in addition to the regular plate fee.
Purchase or Sell Vehicles Online With PrivateAuto
PrivateAuto is the only transactional marketplace where you can sell and buy vehicles conveniently.
Our innovative platform connects buyers and sellers and gives them all the tools to complete the deal, from in-app financing to secure messaging to integrated payments. You can also schedule a test drive and negotiate the price without ever disclosing your personal information.
Here’s how you can sell your car in Iowa with a few simple steps:
- Gather the required paperwork for selling a car in Iowa
- Register on PrivateAuto and get verified
- List your car
- Set your terms
- Vet incoming offers
- Choose a buyer
- Schedule a meeting
- E-sign documents
- Get paid instantaneously with PrivateAuto Pay
- Transfer the vehicle title
Iowa Car Tax FAQ
Which state has the lowest tax rate?
The states with the cheapest car tax are Alaska, Delaware, Montana, New Hampshire, and Oregon, with a tax rate of zero. Nevada has a zero tax rate on private-party car sales, though not on dealership purchases.
With the exception of the above states, all US states charge sales tax on private sales. Oklahoma,North Dakota, North Carolina, Colorado, and Alabama charge 4.5% or less vehicle sales tax.
When are Iowa’s sales tax holidays?
Every year, the Iowa tax holiday is held on the first Friday and Saturday of August. The sales tax holidays will be held on August 5-6, 2023.
During the sales tax holiday, no sales tax is levied on clothing and footwear with a retail price of less than $100.
Does Iowa have excise taxes?
Iowa has a number of excise taxes. These taxes are levied on specific goods or services, and the rates vary depending on the item.
Here are the most common excise taxes in Iowa:
- Motor fuel tax
- Alcohol tax
- Tobacco tax
- Telecommunications tax
- Water service excise tax
Does Iowa charge property tax on vehicles?
In Iowa, there is no property tax on vehicles; however, there is an annual registration fee based on the vehicle type, age, weight, and list price.
How do you protect yourself when buying a car privately?
To protect yourself when buying a car privately, we recommend the following practices:
- Never give out your contact information
- Deal with verified sellers only
- Have a bill of sale to legally validate the transaction
- Send the payment through PrivateAuto Pay
The best way to protect yourself when buying a car privately is by buying it on PrivateAuto. We offer end-to-end solutions to get the deal done, from scheduling the test drive to sending fee-free and instantaneous payments. That’s why we’re the world’s only transactional automotive marketplace.