About Auto Sales Tax

They say the only things certain in life are death and taxes. The taxes part is certainly true when it comes to buying an automobile. Most states impose at least a 3 percent sales tax on the sale of new and used automobiles payable to the city or country in which the transaction occurred. Some states, however, may tack on an additional amount if you bought the car in a different location but wish to register it where you live.

Function

Automobile sales tax is used by states and municipalities for a variety of functions depending on the state. Some states may deposit all receipts into their general fund to be disbursed however the legislature sees fit. Other states allocate all or a portion of auto sales tax receipts for specific needs such as infrastructure repair or mass transportation. Determination of expenditures may also change by legislation. From 1993 until 2001, Minnesota placed all tax receipts into their general fund. A constitutional amendment now requires 100 percent of auto sales tax to be allocated to transportation funding by the year 2012.

Geography

The percentage of automobile sales tax imposed varies widely by geographic location. Some states, such as Oregon and Alaska, do not impose any sales tax on automobiles, although they do collect comparable annual registration and use taxes. Other states apply the same tax rate on automobiles as the general sales tax rate. Some states, such as Colorado, allow local taxing authorities such as cities and counties to add an additional levy onto the sales tax for local use. Some states impose an additional tax based on gas mileage or weight of the vehicle.

Effects

The effects of auto sales tax are diverse and may be positive or negative depending on the perspective of the person being asked. Most state legislatures see auto sales tax as a fair and logical means of generating revenue to pay for transportation infrastructure and other general purpose needs. If you buy a car, the tax helps pay for the roads and bridges you drive on. Opponents of the auto sales tax believe the additional burden contributes to a depression of automobile sales, leading to economic decline across many industries.

Considerations

There are a number of factors to consider when budgeting for an automobile purchase. In addition to the purchase price you must also include dealer preparation charges, documentation fees (the cost that a dealership will typically charge to cover the cost of paperwork), title and registration fees, personal property taxes, county wheel taxes, emissions testing charges, federally mandated gas guzzler fees and of course auto sales tax. On the bright side, the Internal Revenue Service does allow tax payers in some states to deduct auto sales tax from their federal income tax return.

Misconceptions

Some consumers assume that auto sales tax is only imposed on the sales of new vehicles. This is not true. When a purchase is made from a new car dealer the sales tax is collected at the time of the sale. This is also true of used-car dealers. But even when purchasing an automobile in a private transaction between individuals, the purchaser will be required to pay the appropriate sales tax in order to register the vehicle.

Resources

• Internal Revenue Service Sales Tax Deduction Option