Tennessee charges 7% of your vehicle's purchase price. On top of that, you may owe local taxes as well. And then there are the fees.
Keep reading to get the scoop on Tennessee vehicle sales taxes and fees.
Do you Pay Taxes When you Purchase a Car From a Private Party in Tennessee?
When making a car purchase in Tennessee, you’ll pay 7% of the vehicle’s purchase price, whether you buy from a private seller or a car dealer. Tennessee tax law does not discriminate between the two. Unless you qualify for a tax exemption (discussed below), you have to pay tax on your vehicle purchase.
In addition to the 7% state tax, you may owe local sales taxes on your vehicle purchase.
How Local Vehicle Sales Tax Works In Tennessee
Many Tennessee municipalities and counties charge local sales taxes.
Depending on where you live in Tennessee, you could end up paying from 1.5% to 2.75% local sales tax on top of the state’s 7%. County taxes cannot exceed 2.75%.
See a complete list of all Tennessee city and county sales tax rates on this official resource.
Tennessee Local Sales Tax Example
You're in Monroe County, and you find a stunning Chevrolet Colorado for $30,000.
Monroe County’s sales tax is 2.75%. This means you'll owe a total sales tax of 9.75%—$825 in county tax ($30,000 multiplied by .0275) and $2100 ($30,000 multiplied by .07) in state tax. You owe a total tax bill of $2,925 on that Colorado.
What if I Paid Tax in Another State?
If you paid sales tax on the purchase of a vehicle in another state, Tennessee deducts that tax so that you are not taxed twice. There are four potential scenarios (ignoring local tax for simplicity).
- You paid exactly 7% sales tax in Indiana or one of the other states with the same 7% sales tax rate as Tennessee, in which case Tennessee will give you a pass.
- You paid no sales tax in another state, in which case you owe the full 7% Tennessee use tax. Let's say you bought a used car in Delaware and didn’t pay any sales tax, given Delaware’s 0% tax rate. You’ll pay Tennessee’s full 7% use tax rate.
- You paid less than 7% sales tax in another state, in which case Tennessee charges you the difference. Let’s say you bought a used car in North Carolina for $25,000. North Carolina car sales tax rates are 3%, so you paid $750 (.03 X $25,000) in North Carolina tax. When you go to register your car in Tennessee, your total tax bill will be $1,750 minus the $750 you already paid in North Carolina. You can expect to pay $1000 to Tennessee.
- You paid more than 7% in the other state (for example, Kansas levies a 7.5% tax on every used vehicle purchase). We wish we could tell you Tennessee will give you a refund, but no. At least they won’t charge you any more tax.
Understanding the Tax Basis of a Car Sale
Car sales tax is owed on the value of the car you purchased. The value is assumed to be the car’s purchase price—unless the purchase price is suspiciously low.
Some people get the brilliant idea to negotiate an artificially low purchase price, then pay the difference in a side transaction. Don’t do this; the Tennessee Department of Revenue (DOR) is way ahead of you.
The DOR establishes what the car is worth on the open market (its fair market value, or FMV) by referring to the NADA value or other reliable sources on used car prices.
If tax commissioners establish that the car's FMV is significantly greater than its purchase price, they can opt to base tax on the NADA assessed value.
Note that underreporting the purchase price of a vehicle in order to avoid paying sales tax is illegal.
How to Avoid Paying Sales Tax on Vehicles in Tennessee?
Motor vehicle taxes are something you just can't avoid—they are a part of our lives. You are required by law to pay sales tax on private used vehicle purchases unless you meet an exemption in Tennessee.
Tennessee Car Sales Tax Exemptions
Most states offer state exemptions for government vehicles, religious organizations, and military personnel. To learn more about vehicle sales tax exemptions you can qualify for in Tennessee, check with your local DOR.
License Plates, Title And Registration Fees in Tennessee
In addition to the state vehicle sales taxes, you owe other fees when buying a car and registering it in Tennessee, such as a registration fee and a vehicle title transfer fee.
To register your vehicle at the Tennessee county clerk's office, you must show proof of car insurance. First-time passenger vehicle registration costs $29, plus the $11 title fee.
Tennessee's standard license plate fee is included in the registration fee. A personalized plate costs $36.
Is Purchasing a Car from a Dealer Better?
Many people believe that buying a car from a Tennessee dealer will save them money. Going to a Tennessee dealer is more expensive and inconvenient—unless spending 3 hours in a Tennessee dealership is your idea of a fun time.
- Dealerships charge documentation fees above and beyond all the other Tennessee 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 Tennessee is $495.
- Used car dealerships usually have higher prices. Their business model is based on buying low and selling high in order to generate the spread that allows them to stay in business. Skip the middleman and deal directly with private sellers to get the best deals.
We admit that dealers provide a level of convenience that you do not typically get when buying from a private seller. That is, after all, why we exist. PrivateAuto puts dealer-like convenience in the palm of your hand while also allowing you to transact with regular people like yourself.
When you shop for used vehicles from private sellers on PrivateAuto, you avoid the doc fee and get lower prices.
Tennessee Car Sales Tax Calculator
If you're in the market for a used vehicle, you'll want to calculate the applicable sales tax. With PrivateAuto's used car sales tax calculator, calculating sales tax has never been easier. This free online vehicle sales tax calculator calculates the amount of tax you must pay on a used car purchase based on the sales tax rate in Tennessee (7%) and the vehicle's price.
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 via our banking gateway, PrivateAuto Pay. You can also schedule a test drive and negotiate the price without ever disclosing your personal information.
Here are the steps to selling your car in Tennessee.
- Gather the required paperwork for selling a vehicle in Tennessee
- 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, instantly
- Transfer title
Tennessee Vehicle Sales Tax FAQ
How much sales tax do I owe if I live in Knox County?
If you live in Knox County, you will owe $9.25. Knox County has a 2.25% tax rate, while the state of Tennessee levies a 7% vehicle sales tax.
What is the lemon law in Tennessee?
The state of Tennessee has a lemon law to protect buyers if they purchase a faulty car from a dealer. In Tennessee, the Lemon Law does not apply to private sales.
What kind of insurance do used cars need?
Used cars, just like new cars, are required to have liability car insurance at a minimum. Every insurance company will have different rates, so shop around.
Liability insurance is mandatory in Tennessee. You can always consider purchasing collision, comprehensive, and gap insurance, even though these are not required.
Which state has the cheapest car tax?
The states with the cheapest car tax are Alaska, Delaware, Montana, New Hampshire, and Oregon, with a tax rate of zero. Nevada has no taxes on private-party car sales, though it does have them for dealership purchases.
If you really want to avoid car sales tax, you might consider moving to one of these states.
With the exception of the above states, all US states charge sales tax on private-party vehicle purchases. There are some states, such as Oklahoma, North Carolina, Colorado, and Alabama, that charge 4.5% or less.