In the United States, each state differs when it comes to living costs. There are many factors that contribute to these costs, including home ownership, rent, taxes, and more. Some states will charge high taxes to own a car whereas others will charge much lower tax costs. For the average American residing in one of the 27 states that charge vehicle taxes, these taxes cost around $440 each year, according to the U.S. Census Bureau. You should do some research on car taxes before deciding to relocate as you don’t want to be hit by unknown expenses.
Personal property taxes for a vehicle also vary by state and are usually charged annually. However, the cost for vehicle sales tax usually varies by city or county and doesn’t go by state taxes. For example, if a state charges a 6% sales tax but you register your vehicle in a city that charges a 10% tax rate, you will have to pay the 10% rate.
Findings of a Study Conducted in 2017 By the District of Columbia
A study conducted by the District of Columbia in 2017 compared tax rates and burdens in 51 major cities nationwide. The study concluded that all of the cities had some type of automobile registration fee or tax associated with owning a vehicle. Vehicle registration, taxes, and fees are generally charged at a per vehicle flat rate or through excise taxes based on some or all of the value, weight, or age of the vehicle. One state even considered a vehicle’s horsepower in tax costs. In addition, eight cities also charged personal property taxes on vehicles.
The lowest tax burden for vehicles was in New Orleans, Louisiana, where a family earning $25,000 paid $110. The highest tax burden for owning a vehicle was in Providence, Rhode Island, where a family earning $150,000 paid $3,897. In the study, D.C. was among the highest in auto tax fees as it charged $72 to $155 for annual vehicle registration fees; however, the city does not charge personal property taxes or annual excise taxes on vehicles.
State automobile taxes may include state and local vehicle registration fees, personal property taxes, gasoline taxes, and excise taxes. Some states require personal property and auto taxes based on the value of the vehicle while others may levy a different type of tax or fee, such as a uniform fee, use tax, county option tax, wheel tax, gasoline tax, and more. In addition, there are several states that only require an annual excise tax.
Gasoline tax rates also vary between states from a low cost of 9.0 cents per gallon in Anchorage, Alaska to a high cost of 59.3 cents per gallon in Philadelphia, Pennsylvania as of December 31, 2017. The lowest tax burdens at all income levels are the automobile tax burdens, except in states that provide refundable EITCs through taxing at a $25,000 income level.
Considering all income levels, the following cities had the highest vehicle tax burdens with either an excise tax or a personal property tax:
- Providence, Rhode Island
- Los Angeles, California
- Kansas City, Missouri
- Charleston, South Carolina
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Considering all income levels, the following cities had the lowest vehicle tax burdens with flat registration rates or vehicle weight rates, moderate gas tax rates, and no excise tax or personal property tax:
• New Orleans, Louisiana
• Albuquerque, New Mexico
• Anchorage, Alaska
• Birmingham, Alabama
Does Buying a Car Out of State Help You Avoid Paying Your State’s High Taxes?
If your state charges high sales taxes, then you can purchase a vehicle out of state at a used car lot and save on sales taxes. However, it doesn’t matter where you purchase your car; you will still be required to register it in your home state in order to be able to drive it there. There will be taxes included in the registration price as well.
State and Local Auto Sales Tax Rates as of 2020
There are some states that don’t charge sales taxes on cars. These states include Montana, Delaware, Oregon, and New Hampshire. In addition, there are some states that charge less than 5% sales tax rates. These states include Hawaii with a 4.5% sales tax rate and North Carolina with a 3% sales tax rate.
A majority of state tax rates fall between 5% and 10%. From states like Maine at 5.5% to states like Minnesota at 8.38%. In some states like Louisiana the tax rate can reach more than 10%.
How to Get Some Tax Breaks When Purchasing a Car
There are some tax breaks that you may qualify for no matter which city or state you live in. If you or your vehicle meets any of the following requirements, you do not have to pay auto sales tax on your vehicle:
- If you are disabled
- If your vehicle was built before 1973, it is considered a historic vehicle and is tax-exempt
- If you have an electric vehicle, then different tax rates apply
- If your vehicle is used for agriculture, forestry, or horticulture
If you are tax-exempt, then you must display a free-tax disc on your vehicle.
There are several tax credits that may be available to you as well. If you purchase a hybrid or a no- or low-emission vehicle, then the amount paid for the car may cover sales taxes. Moreover, if you purchased a new car in 2009 and do not itemize your return, you may receive a tax deduction due to stimulating growth in the auto industry.
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States With the Highest and Lowest Rates of Owning a Car Based on Average Annual Costs
Lowest:
Oregon
- Total Auto Ownership Cost: $10,510
- State Taxes: $0
- Cost of Insurance: $1,220
- Maintenance and Repair Costs: $390
- Gas Costs: $1,085
- Auto Registration Costs: $86
- Title Costs: $77
Highest:
Louisiana
- Total Auto Ownership Cost: $14,965
- State Taxes: $3,615
- Cost of Insurance: $2,113
- Maintenance and Repair Costs: $389
- Gas Costs: $1,051
- Auto Registration Costs: Based on selling price of vehicle
- Title Costs: $69
- Vehicle Property Tax: $38
Some states have high car tax rates while other states have lower rates. By knowing the vehicle tax rates of your particular state, you’ll be in a better position to make the right financial decisions when it comes to owning a car.
