Vehicle Sales Tax and Title Transfer Fees
Be sure, when budgeting for a new car, to account for the possibility of sales tax and title transfer fees. In the excitement of the purchase, it’s easy to overlook these two after-the-fact charges.
Car Sales Tax
Excuse yourself from reading this section if you reside in Delaware, Montana, New Hampshire, or Oregon. None of these purchase-friendly states charge sales tax. For everyone else, including Washington D.C. residents, read on. (Note: Though Alaska does not impose a state sales tax, state laws allow for municipalities to charge a local sales tax.)
The sales tax you’ll pay on your new car is contingent on where you live. This includes not only your state, but also your county and city. Currently, out of the 45 states that charge a sales tax, 34 also allow for counties and municipalities to impose a local sales tax.
The exact sales tax rate varies by state and jurisdiction, but to give you an idea of what states are charging, Hawaii has the nation’s lowest combined state and sales tax rate at 4.35%, while Tennessee charges the highest at 9.44%.
How to Calculate Your Auto Sales Tax Rate
If you’re purchasing a new car from a dealership, the finance manager will calculate your sales tax rate for you. Your rate will be based on three scenarios:
- Total purchase price.
- Purchase price after trade-in is deducted.
- Purchase price after cash incentive is deducted.
If, however, you’re buying a new car from an individual, you’ll need to do the brain-work yourself. Fortunately, many states make this easy by providing online sales tax rate calculators. If you cannot locate an online sales tax rate calculator, check with your State Comptroller for your sales tax rate.
Keep in mind that the sales tax you pay on your new car is based on where you register it. For example, if you purchase a vehicle in New Hampshire, where there is no sales tax, but reside in Amherst, Massachusetts which charges sales tax, you will be taxed on the new car.
Title Transfer Fees
A car title serves as your proof of ownership. Whenever a used car transfers ownership, a title transfer fee comes into play. This applies to the following car-transfer scenarios:
- Transferring to family
- Paying off a car loan
Title transfer fees vary by state. In most cases you pay this fee before registering the car. Some states, such as Oregon, that allow you to title and register at the same time. If in doubt, contact your local DMV.