Do I have to Pay Sales Tax when I Buy a Used Car?

Do I have to Pay Sales Tax when I Buy a Used Car?

The short answer is almost always. After all, most states rely on sales tax for a lot of their revenue, and they’re not likely to let the tax on a big purchase like a car — even a used one — slip through their fingers.

Exceptions to the Rule

You can get lucky if you live in Alaska, Montana, Oregon, Delaware, and New Hampshire. These five states don’t charge sales tax for new cars, used cars, or anything else for that matter. It’s also worth noting that the states that do charge sales tax usually won’t let you evade the law by claiming a vehicle was gifted to you without payment. They’ll simply make you pay a tax on the vehicle’s fair-market value instead.

Some states do grant family exceptions specifically for cars, too. For example, Michigan doesn’t charge sales tax when a vehicle is sold between family members including parents, siblings, and grandparents.

How Do I Pay Sales Tax on a Used Car?

It’s easy! You just need to bring proof of purchase and a signed title document to the DMV, and you pay your sales tax at same time you register your car. Now, as is the case with a lot of vehicular paperwork, dealerships typically handle the sales tax on used cars when you buy through them. But it’s a bit of a double-edged sword. Many dealers actually charge for the service as part of their “doc fees,” so they aren’t helping you out for free. 

Can I Deduct the Sales Tax on a Used Car?

This is certainly something to discuss with an expert, but the IRS does let you deduct vehicle sales taxes from your federal return in specific situations. The catch is that you can’t deduct both your state/local vehicle sales tax and your state/local income tax. So it really only makes sense if you paid more in vehicle sales tax than you did in income tax on your state filing. 

Now that you know, you can start shopping here, start selling here, and enjoy the whole HMSMC site from wherever you have an Internet connection.