Welcome to a whole new world of taxes on used cars. If you are wondering just how much tax you have to pay when purchasing a used car, well, wonder no more.
In this article, you will learn just how much used car taxes are, how to calculate the tax of a used car on purchase, and factors affecting the tax amount payable per used car.
What is a Sales Tax for Used Cars?
Sales tax, in this context, is a tax that is generated on the purchase of cars by consumers and sales of cars by dealerships.
It falls as a type of consumption tax since it's a tax that is generated by consumers when they spend money.
The used-car sales tax is usually passed along to consumers during the car purchase process.
Who pays sales tax on a used car in USA?
Used-car sales tax is not paid directly to the government but collected by dealers from consumers and remitted directly to the appropriate government entity.
Before buying a used car and before considering negotiations, you should properly examine and inspect the vehicle.
Visual inspection alone is not sufficient to determine the reliability of a used car.
It is recommended to carry out a VIN check and generate a Vehicle history report which shows the history of the vehicle.
A vehicle history report shows the accidents and damage history, auction records, ownership history, lien and loan records, theft records, and more.
Having this information at hand will prevent you from ending up with a car that will require frequent fixes here and there.
Generate a vehicle history report now from Detailed Vehicle History.
Factors Affecting Used Car Tax
The first thing you should understand is that whether you are buying a new vehicle or a used vehicle, you have to pay tax for that vehicle.
The amount of tax payable for any vehicle, used or new depends on a certain number of factors and these factors will be explained in this article.
Sales tax rate per state
It is very important to understand the exact sales tax rate in your state. Usually, most states charge between 5% and 9% for their sales tax but this amount is subject to change as sales tax on used cars varies per state.
The average sales tax rate is around 5.75%. In addition to the sales tax rate for used cars, there may be other local taxes attached to the purchase of a used vehicle.
It is advisable to always confirm the exact used car tax rate and local taxes on used cars with your local tax authority before purchasing a used vehicle.
READ ALSO: 5 Best Used Electric SUVs to Buy
Exact price of used car
Sales tax on used cars is a function of the purchase price. That is, the sales tax actually depends on the purchase price.
It is calculated as a percentage of the price of the used car you are purchasing. So, a higher purchase will lead to a higher sales tax bill and a lower purchase will lead to a lower sales tax bill.
It is also recommended to put into consideration that some states may have a threshold that when exceeded will result in a higher tax rate.
How to calculate used car taxes and fees
Getting to know the exact amount to be paid as tax for buying a used car is not a difficult task and we will learn how to do so now. The formula is:
- Sales tax = Sales tax percent / 100
- Sales tax = List price x Sales tax rate
Examples of used car tax calculation
Let us assume you were to purchase a used car of $10,000 with a sales tax rate of 5.75%.
Sales tax = 5.75 / 100 = 0.0575
Sales tax = $10,000 x 0.0575 = $575.
Sales tax = $10,000 x 0.0575 = $575.
This means that you would pay a total of $10,575 for that purchase.
If you were to buy the same car at another country with a different tax rate of maybe 8%
Sales tax = 8 / 100 = 0.08
Sales tax = 8 / 100 = 0.08
Sales tax = $10,000 x 0.08 = $800.
In this case, you would be paying a total of $10,800 for the purchase of your car.
In this case, you would be paying a total of $10,800 for the purchase of your car.
Vehicle's Registration Fee
Another factor to consider is the vehicle's registration fee. After the used car purchase is completed, you will have to register your vehicle.
This registration is usually done with the Department of Motor Vehicle (DMV) and it usually comes with a price.
You didn't think it was free, did you? Well, this amount is usually paid with the tax and is not based on the vehicle's purchase price.
Use Tax
Some states also require payment of “use tax” on vehicles. The use tax is similar to the sales tax as it is calculated as a percentage of the purchase price or the fair market value of your vehicle.
In most states, the use tax is usually 2.9% to 7.25% of the car's worth at the state level.
Remember to always confirm the use tax price alongside the sales tax before any purchase.
Take note, according to New Mexico Legislator site, that some states such as Alaska, Delaware, Montana, New Hampshire, and Oregon do not pay sales tax on used car sales while some states pay less than 3%.
Used car sales Tax Rates in US States
State | Used Car Sales Tax Rate |
Nevada | 8.30% |
Kansas | 7.50% |
California | 7.30% |
Indiana | 7.00% |
Rhode Island | 7.00% |
Tennessee | 7.00% |
Utah | 6.90% |
Georgia | 6.60% |
New Jersey | 6.50% |
Arkansas | 6.50% |
Washington | 6.50% |
Connecticut | 6.40% |
Illinois | 6.30% |
Massachusetts | 6.30% |
Massachusetts | 6.30% |
Texas | 6.30% |
District of Columbia | 6.00% |
Florida | 6.00% |
Idaho | 6.00% |
Kentucky | 6.00% |
Maryland | 6.00% |
Michigan | 6.00% |
Pennsylvania | 6.00% |
Vermont | 6.00% |
Ohio | 5.80% |
Arizona | 5.60% |
State | Used Car Sales Tax Rate |
West Virginia | 6.00% |
Wyoming | 6.00% |
Maine | 5.50% |
Nebraska | 5.50% |
Iowa | 5.00% |
Mississippi | 5.00% |
North Dakota | 5.00% |
South Carolina | 5.00% |
Wisconsin | 5.00% |
Missouri | 4.20% |
Virginia | 4.20% |
Hawaii | 4.00% |
Louisiana | 4.00% |
New Mexico | 4.00% |
New York | 4.00% |
South Dakota | 4.00% |
Oklahoma | 3.30% |
North Carolina | 3.00% |
Colorado | 2.90% |
Alabama | 2.00% |
Alaska | 0.00% |
Delaware | 0.00% |
Montana | 0.00% |
New Hampshire | 0.00% |
Oregon | 0.00% |
We have seen that the amount of used car tax varies based on the sales tax rate per state, the price of the used car, registration fee, and use tax.
It is very important to confirm these rates from your local tax authority to avoid being taken by surprise.
Also, note that purchasing a used car from a private party may incur more taxes based on the difference between the purchase price and the fair market value.
