• What You Should Expect with Car Sales Tax

    When you are purchasing a new or used vehicle it is important to remember that car tax costs must be paid before the vehicle is registered. No matter how you find a new vehicle, unexpected tax costs can keep you from registering your vehicle and getting on the road quickly. This guide will help you estimate auto taxes based on local regulations. Be sure to use a website like Autos.com to request quotes on vehicles of your choice, but remember that these quotes will not include any local sales taxes. This guide will help you approximate sales taxes when you do get a quote on your dream vehicle.

    How Car Sales Tax Is Calculated

    In most states, car sales tax is calculated based on the “top line” selling price of the vehicle, plus any dealer installed equipment and dealership documentation fees. On new vehicles, the top line selling price only includes dealership discounts from the manufacturer’s suggested retail price and not savings that come by way of rebates from the manufacturer. For example, if a new car sells for a negotiated price of $20,000, you have a $400 remote start installed and the dealership has a $200 documentation fee, the total taxable amount would be $20,600. You must pay local and state sales tax on this amount, and any additional rebates would come off after tax, being notated like a down payment. On a used vehicle, the negotiated pre-tax selling price plus any dealer-installed options and documentation fees are taxed.

    Some Exceptions to the Rule

    Depending on the rules of your state or county, there may be some exceptions to these sales tax computations. Be sure to check with your local department of motor vehicles or state registrar to get information on auto taxes in your state. In some areas, rebates are not taxed and must be used to lower the top line selling price of the vehicle and, in turn, lower the total taxes due. In other areas, the state may offer a tax difference program in which a car buyer must only pay tax on the difference between the selling price of the new vehicle and trade-in value of the old vehicle. If you have a trade-in, this can save you a significant amount in sales tax. Some states have trade difference rules for new cars, while others offer this perk only on used car transactions. A handful of states do not offer this perk at all. Trade difference works as follows: if a prospect purchases a vehicle with a manufacturer’s suggested retail price of $19,000 and has a trade in worth $9,000, the buyer must only pay sales tax on the difference, or $10,000. This results in a net savings of local sales and use taxes on the $9,000 value of the trade.

    By following this guide, it can be easy to approximate the total cost of tax on your next vehicle purchase. If you have any specific questions regarding sales tax, be sure to contact a local dealership’s finance manager who can best answer your questions. Additionally, questions regarding taxation may also be posed to a local bureau of motor vehicles office.

    Taxing the Documentation Fee

    In most states, documentation fees are taxed, because they are viewed as an addition to the top-line selling price. Remember that documentation fees are easy profit for the dealership, so see if they will reduce or eliminate the documentation fee altogether. While documentation fees are taxed, state registration and license plate fees are not normally taxed. Make sure you do not pay tax on these fees.

    Taxing the Trade Difference

    Many states offer a trade difference program, through which you pay tax only on the difference between the selling price of your new vehicle and the trade-in value of your new vehicle. This can save you hundreds of dollars in sales tax. For example, if you purchase a vehicle with a cost of $18,000 and have a trade worth $10,000, you are taxed only on the difference of $8,000. This rule varies by state and is not offered in all states, so contact your seller if you have any questions.

    After determining whether the documentation fee is taxed and if you may pay tax only on the trade difference, you can approximate the total amount of sales tax you must pay. Just take the selling price or the trade difference amount and multiply it by your local sales tax amount. This will help you approximate car state sales tax very quickly.