When you purchase a vehicle in California, you must pay sales and use taxes on it, in addition to the purchase price. This portion of your costs must be paid within 30 days, and you may have to pay more per month on your vehicle loan to cover the cost of taxes. As of 2011, sales and use tax is calculated based on the buyer's county of residence regardless of where in California the sale takes place.
County Sales Tax
Most automobile dealers in California calculate sales tax based on the county in which the buyer resides. Sales tax varies from county to county, so California buyers may save money if they live in a county with a lower sales tax rate. For example, a buyer from a county that charges only 7.75 percent sales tax will save money on taxes even if he buys from a county with a higher sales tax rate.
Automobile sales tax rates vary from a minimum of 8.25 percent to a maximum of 10.25 percent in California as of 2011, depending on the buyer's county of residence. Most car dealers calculate sales tax based on the total purchase price. If you are trading in a vehicle or taking advantage of a cash-back incentive offer, the dealer may subtract these amounts from the total sale price before calculating the tax.
Exemptions From Tax
In general, if you receive a car as a gift, you do not need to pay sales tax on the value of the vehicle. For example, if your parents or grandparents give you a car or you inherit it after a relative's death, you do not to pay any sales tax. You also do not need to pay sales tax if someone unrelated to you gives you a car rather than selling it to you or if a court orders someone to give you a car.
After you purchase a vehicle in California, you must pay any sales tax due within 30 days. If you do not pay the sales taxes due within that time period, the California Department of Motor Vehicles may begin charging you penalties. The amount of tax you are required to pay may also affect your monthly payments if you take out a loan to pay for your vehicle. Your monthly payment may be slightly higher if you pay greater taxes on your vehicle.