For most US residents, sales taxes are a fact of life, and private party car purchases are no exception.
For most US residents, sales taxes are a fact of life, and private party car purchases are no exception.
Most states charge anywhere from 5% to 9% sales tax on the sale of motor vehicles. These percentages are calculated from the purchase price of a vehicle when it exchanges hands. Used car sales tax is levied at the same rate as new car sales tax.
In addition to the sales tax, expect to pay additional fees on the purchase of a vehicle. These vary by state, and can include the registration fee, license plate fee, and additional taxes or levies.
In states that charge sales tax, the buyer always pays the tax. Additionally, the buyer will pay the title transfer fee, registration fee, and any other taxes or fees charged by their state, county, or city. For example, some states and localities may charge a motor vehicle excise tax, sales or use tax, or other miscellaneous taxes and fees.
Yes, you will pay sales tax when you buy a used car from a private seller. Sales taxes apply equally to private and dealership vehicle purchases. Also to new and used vehicles alike. If you live in a state that charges sales tax, you will pay sales tax, regardless of who sold you the car.
Each state sets its own sales tax, with a few states opting not to charge sales tax at all. Here are the vehicle sales tax rates by state. Note that the rates below are statewide and that cities, counties, or other entities can still charge their own sales taxes in addition to the statewide sales tax.
Also, the following rates do not include any sales and use tax, excise tax, or other state and local taxes.
*Individual cities and regions within the state charge their own sales taxes.
The following states do not charge a statewide sales tax, although local sales taxes can still apply.
Our handy used car sales tax calculator can help you figure out how much you’ll owe in taxes when you buy a car in your state. Just plug in your vehicle’s purchase price and your tax rate. If you live in an area that charges a local tax on top of the state sales tax, add the two rates together.
For example, if you live in Alameda County, California, you’ll add the California sales tax rate (7.25%) to the Alameda County sales tax rate (3%) and enter the total (10.25%) into the calculator.
Vehicle sales taxes can add up fast, so it’s no wonder that many people want to avoid paying them. Unfortunately, unless you live in a state that doesn’t charge auto sales tax, you’re probably stuck paying them. Here are a few ideas on how to minimize (or possibly get out of) paying sales taxes on your used vehicle purchase.
Many people think that they can travel to a state that doesn’t charge sales tax, buy their car, and bring it home to their state. That doesn’t work. You pay taxes based on the state in which the car will be licensed and registered, not on where you purchased it.
If you move to a state that has no sales tax—and to a county and city that don’t charge auto sales taxes—then you’re scot free. However, moving is probably a lot more expensive than just paying the tax in the first place.
If you live in a state with a low (or no) sales tax and are planning to move to a state with higher sales taxes, just buy your vehicle before making the move. Register it in your current state, then after the move, re-register it in your new state.
Sales taxes are paid on the purchase price of the car, so getting a better deal translates to less taxes paid. Here are some tips to getting the best used car deal possible.
Different states have different exemptions for vehicle sales taxes. If you qualify for an exemption, you are not required to pay sales tax on your vehicle purchase. The following are some of the exemptions that some states offer: check with your state’s Department of Revenue (or equivalent department) to see what exemptions they offer.
Don’t negotiate a “side offer” with the vehicle seller so that the paper amount of the sale is less than the vehicle’s market value. Your state’s Department of Motor Vehicles, Department of Revenue, or other government body will calculate taxes owed based on the vehicle’s market value. You’re likely to get busted when you go to take care of your vehicle registration.
That said, if you’re able to negotiate a $45,000 vehicle down to $39,000 fair and square, you shouldn’t have a problem. If you make a side cash offer to a seller so that the same $45,000 vehicle shows on paper that you paid $10,000, you’ll probably have a problem.
Used Car Sales Tax FAQ
Private car sales are not reported to the IRS in the same way that an employer reports income tax. Especially in a private party car transaction, neither party is highly motivated to follow up and report the transaction to the IRS. Additionally, private party sales are not usually subject to IRS taxation. The buyer pays sales taxes to the state (and sometimes to the county and city), while the seller is not subject to taxation—unless they make a profit. If the seller fetches a higher price than they paid for the vehicle, they will be subject to capital gains tax on the difference.