Many people assume they only need to pay tax when buying brand-new vehicles. This isn’t true. Most states charge sales tax when you purchase or lease any motor vehicle. You don’t pay the tax to the dealer, though. Tax rates are added to the amount you pay when you register the car with the Department of Motor Vehicles in the state where you live.
What Is the Average Sales Tax Rate for Vehicles?
Most vehicles have a minimum sales tax rate of 4.87%, which can fluctuate over time. Where you live makes a difference, and there are some states that charge well over this rate.
You can follow a few tips to ensure that your vehicle taxes are lowered legally. Sometimes it’s simply a matter of where you live and how tax dollars are spent in your region. Here are a few ways to lessen your burden when purchasing or leasing a used vehicle.
1. Consider the Price
What you pay in vehicle taxes depends on the price of your vehicle. What you pay to the dealership impacts the amount of state sales tax you’ll be paying. Some states demand up to 8%, which can be fairly steep for any vehicle. For example, if your vehicle costs $12,000, then the tax you pay will be $960. Much of this depends on what your home state charges, so it’s best to be financially prepared.
2. How Price Affects Vehicle Taxes
In general, the lower the price, the less your tax will be on a used vehicle. And although most used vehicles typically have lower taxes than anything new, rates will vary. Other issues such as fair market value impact how much you might be paying in vehicle taxes. State and local laws will also influence how much your vehicle tax rate will be.
3. Ask About Fair Market Value
You’ll need to do a lot of online research when shopping for your vehicle. Fair market value is one of the factors to consider. Think of fair market value as being a bit like an auction without the fanfare. A good way to define it is as a list of prices other customers are willing to pay for a specific make, model, and year.
4. Compare Fair Market Value
A vehicle that cost you $12,000 might have a market value of $15,000 if that’s the price most people are willing to pay for it. And if you keep in mind that the value of used vehicles is lower than newer ones, you could be able to pay less in taxes on that vehicle.
Fair market value can be compared on a variety of sites where used vehicles are typically sold. Here you will find information about the different makes and models of used cars, compare prices, and see their value.
5. Purchase Your Vehicle in Another State
A few states charge very little tax or none at all. If you live in California, you will pay as little as $149. If you live in Michigan, you’d pay an average of $110 in car taxes. This leaves Montana as the state with the lowest tax rate for residents, $85 for used vehicles.
6. Are There Any States That Don’t Charge Property Taxes for Vehicles?
If you happen to live in Washington, DC, or any of these 22 states, you’ll owe no property taxes for motor vehicles. The states include Delaware, Georgia, New York, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Maryland, North and South Dakota, Tennessee, and Texas. If you purchase a vehicle out of state, keep in mind that if your home state charges sales tax on vehicles, you’ll need to pay it when you register your car.
7. Older Vehicles
If you own a historic vehicle, you’re in luck. Vehicles made before 1973 are considered legally exempt. This applies to cars that are registered as historic motor vehicles. This status will show on your license plate upon registration.
8. Relocation to Another State
There are other legal ways to avoid a heavy sales tax on your used vehicle. One of the most popular ways is to make your purchase prior to relocating. If you’re moving from a state with no sales tax (Alaska, Montana, Delaware, Oregon, or New Hampshire) to one that does, this is perfectly legal. You won’t need to worry about penalties and fees, plus you can save more money in the long run. The catch is that this must be done 90 days prior to moving.
9. EV Tax Credits
States are offering the public incentives to invest in an electric vehicle by offering EV tax credits. It’s a credit that rewards those who are environmentally conscientious, and you can apply for one if you meet the criteria. These are special credits that will cover the cost of your vehicle’s sales tax so that you’ll owe nothing.
10. Vehicle Sales Tax Exemptions for Businesses
Vehicles used for certain types of business can also apply for a sales tax break. These include any motor vehicles used in forestry, farming, and horticulture. Plows and tractors are two major examples.
11. Car Value Depreciation and Its Impact on Your Property Tax
Every state charges property taxes. Property taxes are enforced for those who own property, and they can fluctuate according to your home state or region. These are the taxes that pay for essential services such as road construction and repair, police, fire, and EMS. Other taxes pay for public schools and teachers’ salaries. How much you are charged is contingent upon the region where you live.
12. The Impact of Depreciation
For vehicles, property tax rates depend on the market value of your vehicle. New vehicles pay more each year. But for used vehicles, the news is good. Vehicles depreciate in value each year as you renew your registration. The older the vehicle, the lower the property tax on it will be.
13. Lower Taxes, More Value
You’ll find an incentive to shop around for the best possible used vehicle for your money. In order to enjoy lower property tax rates on any vehicle, you should strive to keep it for as long as possible. During that time, you can act to keep or possibly improve the value of your car through proper care and maintenance.
14. Don’t Be Tempted to Evade Legitimate Taxes
In most cases, there is no avoiding a vehicle sales tax. Any attempt to do so is known as tax evasion and is punishable by fines and arrest. Be aware that any form of false documentation carries a severe punishment of its own. And with that being said, claiming your exemptions should be done legally and with the services of a trusted tax accountant. No matter the person you choose to hire, they should have a strong background in vehicle tax laws.
