How to Calculate Auto Sales Tax

How much automobile sales tax you will pay depends not on the price of the vehicle, where you live and whether the car is new, used or a trade in. Taxes also differ for cars bought from a dealer and those bought from a private individual. Finally, some states do not charge any tax on car purchases.

Difficulty:

Moderately Easy

Instructions

1. Make a list of all expenses related to buying a car. This normally includes the price of the car and a series of documents and transfer fees you must pay before you become the rightful owner of the vehicle.

2. Calculate all the non-taxable expenses first, such as warranties and other document fees. Ask questions before you sign any deals so you understand which items you will be responsible for paying taxes on. Keep in mind that taking a few things out of the list of taxable items can make a big difference on your state tax.

3. Make a list of all taxable items besides the price of your car. You will have to pay taxes on the cost of title transfer, but you may also have to pay auto sales tax on things like insurance and license plate changes.

4. Calculate the total cost of your car by applying the tax for your state. Make sure your state has a designated tax base for cars. Some states (such as Alaska and Oregon) offer tax-free shopping on all items, including cars.

5. Find out if your state allows for tax deductions based on the price of a trade-in. Some states will require that the dealer charge taxes based on the price of the car you are buying, while other states will charge taxes on the amount you pay after deducting the value of the trade-in.

Tips & Warnings

• Sales taxes for a car bought from another individual may be exempt of certain taxes, such as transfer fees. To find out the laws in your state, consult an accountant.

• Keep in mind that the prices quoted when you are shopping for a car do not include sales tax. Make sure you include these taxes while calculating loans from banks or financial institutions.