Taxes On a Used Car | Everything You Need to Know About It

You should pay sales tax on every used car. This tax rule will be applied whether you purchase it from an individual or from a dealer selling used cars. Under US Federal Law, sales tax will be charged when you buy the car.

The sales tax rule for old and used cars is the same as applied in the case of new cars.

The quantum of sales tax, however, varies from one state to the other. There are some US states where you don’t have to pay the sales tax but are liable to pay other forms of local tax.

One of the determining factors of sales tax amount will depend on the total value of the used car. People buy used cars to save a large amount of money that goes with buying a brand-new one. But you get the same benefits from a used car that you would get from a brand-new one.

Is There a Sales Tax on Used Cars?

Yes, you are liable to pay sales tax on purchasing a used car. The Department of Motor Vehicle (DMV) levies and collects the sales tax on the purchase of old and used cars. When the ownership of a used car is transferred to you, the tax is levied on the basis of the sale receipt or such a document testifying to the transfer of the car.

A dealer selling you a second-hand or used car is also required to issue a bill or money receipt proving the sale of the car. The DMV will levy and collect the tax on car sales.

How Much is Used Car Sales Tax?

The quantum of sales tax varies from one state to the other. The National Average of used car sales tax is around 5.75% on the sales price shown in the sales receipt or any such document. In some states, this rate of sales tax can go as high as 9%. But you don’t have to pay sales tax in Alaska, Delaware, New Hampshire, Oregon and Montana. These states don’t have sales tax on used cars. There are some counties and cities that also charge additionally for buying a used car. Such taxes are motor vehicle excise tax and personal property tax.

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How to Calculate Used Car Sales Tax?

Before buying a used car, you should calculate your tax liability. This will help you to know how much you have to spend on the head of sales tax and other fees payable at the time of transfer of the car. Your calculation of sales tax on a used car depends on a number of factors.

You Can Do It by Following the Given Ways:

Model of Used Car You Are Going to Buy: You should know that the sales tax you pay depends on the model of the car.

Market Value of the Used Car: You should know the market value of the used car you are buying. The sales tax depends on it. You can easily get a list of used cars and their market prices. This will help you to know how much you have to pay as sales tax.

Other Taxes You Are Liable to Pay: Besides the sales tax, you also have to pay certain other types of taxes on buying a used car. Such taxes and their quantum vary from one state to other. As a result, you may be paying more in one particular state but paying far less in another. The other taxes mainly include:

Fee for Transferring the Title: The ownership title of the car will change when you are buying it from an individual or a dealer. The legality of your own cannot be proved unless you have paid this fee. For this, you require the service of a lawyer. The title transfer fee ranges from $15 to $50 depending on the state where you are doing this transfer.

Fee for Registration & Licensing: These types of fees will be assessed by the DMV officials. The fixation of fees will depend on your car model, make, year, and condition of the car. The purpose of the use is also included in it. This means you have to specify if you are buying it for your personal use or if you want to rent it out to others as a commercial vehicle. The fee will be higher if used for commercial purposes than for personal uses.

Can I Avoid Paying My Used Car Sales Taxes?

No, you cannot. You have to pay it in all the states of the USA except the ones that don’t charge taxes for sales of used cars. Paying sales tax and other fees is unavoidable for the validity of the car is transferred to you from others (previous owner or a dealer in used car). Paying sales tax is compulsory.

Conclusion

You can buy a used car both for commercial purposes to generate income or use it for personal use. You are free regarding the mode of use of the second-hand car you are buying. The taxation structure in the case of used cars is extremely streamlined in the USA.

The DMV may also inspect whether you have already paid sales tax and other fees or not. This documentation-checking process is regularly carried out in all parts of the country. You can always play safe by paying the sales tax and all other types of fees required in the transfer of ownership of used cars.

By buying a second-hand or used car, you can save a large amount of money that you would pay to buy a new one. It is always advisable that you buy a used car to save money yet get the same benefits that you would get by buying a new one. Do let us know if you wish to know more on it.