What States Don’t Have Sales Tax on Cars?

Purchasing a vehicle in the United States involves various tax obligations, with sales tax being a significant component in most states. While the majority of states levy a sales tax on new and used car purchases, a select few do not impose this specific statewide tax. Understanding these state-specific regulations is important for car buyers, as the total cost of a vehicle extends beyond its sticker price.

States Without Sales Tax on Car Purchases

Five states currently do not impose a statewide sales tax on the purchase of new or used vehicles: Alaska, Delaware, Montana, New Hampshire, and Oregon. In these states, buyers do not pay a percentage of the vehicle’s purchase price as a sales tax at the time of sale. This absence of sales tax can represent a considerable saving for consumers.

Alaska does not have a state-level sales tax on cars, although some local governments within Alaska may impose their own taxes. Delaware, Montana, New Hampshire, and Oregon also do not charge a state sales tax on vehicle purchases.

Other Taxes and Fees on Car Purchases

Even in states without a statewide sales tax on vehicles, car buyers encounter other mandatory taxes and fees. These charges are distinct from sales tax and are generally associated with vehicle ownership, registration, and titling. Common examples include vehicle registration fees, title fees, and license plate fees.

Vehicle registration fees are usually annual or biennial costs necessary to legally operate a car on public roads, often varying based on the vehicle’s age, value, or weight. Title fees are assessed to process the transfer of vehicle ownership and to issue a new Certificate of Title. License plate fees cover the cost of the physical license plates required for the vehicle.

Beyond these, some jurisdictions may impose excise taxes or personal property taxes on vehicles. An excise tax on vehicles can sometimes function similarly to a sales tax, or it might be based on factors like the vehicle’s weight or fuel efficiency. Personal property taxes on vehicles are typically annual taxes based on the vehicle’s value.

How Car Sales Tax Generally Works

In most U.S. states, sales tax on car purchases is applied as a percentage of the vehicle’s purchase price. This percentage varies significantly by state, and local sales taxes can further increase the overall tax rate. The sales tax is typically collected by the dealer at the time of sale and then remitted to the appropriate state and local tax authorities.

In many states, the taxable amount can be reduced by the value of a trade-in vehicle. For example, if a buyer purchases a $30,000 car and trades in a vehicle worth $10,000, some states will only apply sales tax to the $20,000 difference. However, some states calculate the sales tax on the full purchase price, regardless of any trade-in allowance. Sales tax applies to both new and used vehicle purchases from dealerships and private sellers, with the buyer responsible for paying the tax at the time of registration for private party sales.

Out-of-State Car Purchases and Residency

A common misconception is that purchasing a car in a state with no sales tax will allow a buyer to avoid sales tax entirely if they reside in a state that does impose it. Sales tax on a vehicle is generally determined by the state where the vehicle will be registered, not necessarily where it is purchased. States implement a “use tax” to prevent residents from circumventing sales tax by buying vehicles out-of-state.

If a resident of a state with sales tax purchases a car in a sales-tax-free state, they will owe their home state’s use tax when they register the vehicle. This use tax is usually equivalent to the sales tax that would have been paid if the vehicle had been purchased in the resident’s home state. Some states may offer a credit for any sales or use tax already paid to another state, ensuring buyers do not pay taxes twice on the same transaction.