Taxes When Buying a Car

State Sales Tax

Your state most likely charges a tax with your new car purchase. That rate may match the going rate for all purchased items or be pegged to a lower rate in order to make new car purchases more affordable. Purchasing a car in another state will not absolve you of your own state’s sales tax obligation. Most likely, your rate will coincide with your state tax rate with the dealer collecting those monies and forwarding them to your state.

Local Sales Tax

Some communities add a slight sale tax mark up of their own on new car purchases. That amount may be added to your state sales tax figure or shown separately on your sales agreement. Your local tax may be only one-quarter of one percent, a comparatively small amount to the upwards of 8 percent sale tax rate charged by your state.

Registration Fees

When you register your vehicle through the Department of Motor Vehicles, you’ll be charged a registration fee which covers the cost of assigning the title and issuing license plates. For new car buyers, the dealer handles the paperwork, but the funds collected go to your state. This fee is recurring — you’ll be updating your registration annually.

Property Taxes

Not many states charge property taxes on vehicles, but some do and charge them annually. For example, in North Carolina the state requires its 100 counties to assess the value of passenger vehicles with the DMV and to prepare tax bills. Three months after the car has been registered or renewed, a tax bill is sent to the owner who must pay it or have his license plate registration blocked.

Documentation Fees

Dealers will sometimes add a documentation or doc fee for processing your sale. Although not a tax and often something the dealer keeps, you may still view this fee as a tax. Some states limit the fee while others do not. When negotiating the price of your new car, you can negotiate to reduce this fee too.

Accounting Methods

Consumers should learn if their state taxes a trade-in or allows them to deduct that value from the cost of their new car. For example, a new car with a $25,000 sales price would be taxed at $18,000 with their $7,000 trade-in. Some states adjust their sales taxes accordingly. In addition, rebates can lower the price of your vehicle, but some states charge sales tax at the higher, unadjusted sales rate.

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