What Taxes Apply to Cars? Sales, Property, and Fuel Tax

Cars are subject to various taxes throughout their lifecycle, from the initial purchase to ongoing ownership and daily use. These financial obligations contribute to public services and infrastructure, funding elements such as road maintenance, transportation initiatives, and general government operations. Understanding the different types of taxes associated with vehicles can help individuals anticipate costs beyond the purchase price. These taxes are implemented at federal, state, and sometimes local levels, leading to variations in how they are applied across different jurisdictions.

Taxes on Vehicle Purchase

When acquiring a vehicle, several taxes are typically incurred at the point of sale. These are generally one-time payments tied directly to the transaction of buying the car, whether new or used. The primary tax encountered during a vehicle purchase is sales tax, which is calculated as a percentage of the vehicle’s purchase price. This tax applies to both new and used vehicles in most areas. Dealerships usually collect sales tax directly from the buyer, while for private party sales, the buyer is typically responsible for remitting the tax to the state’s Department of Motor Vehicles (DMV) when registering the vehicle.

A related levy is use tax, which generally applies when a vehicle is purchased out-of-state and then brought into another state for registration. This prevents individuals from avoiding sales tax by purchasing a vehicle in a state with a lower or no sales tax rate. The amount of use tax corresponds to the sales tax rate of the state where the vehicle will be registered, often with a credit for any sales tax already paid in the state of purchase.

While a broad federal luxury tax on vehicle purchases is not currently in effect in the United States, some specific state or local taxes might apply to high-value vehicles. The rates and specific rules for sales and use tax on vehicles can vary significantly across states. A few states do not impose a statewide sales tax on vehicle purchases, which can influence the total cost of acquisition.

Ongoing Taxes and Fees of Vehicle Ownership

Beyond the initial purchase, vehicle ownership involves recurring taxes and fees. These are typically levied annually or biennially. One such recurring charge is personal property tax, also known as an ad valorem tax, which some states and localities impose based on the assessed value of the vehicle.

The assessed value of a vehicle for personal property tax purposes is determined using guides, such as Kelley Blue Book or NADA guides, which provide market values for vehicles. The tax is then calculated as a percentage of this assessed value, with specific rates set by local taxing authorities. For example, some jurisdictions might assess a vehicle at a percentage of its market value, and then apply a tax rate per hundred or thousand dollars of that assessed value.

Vehicle registration fees and license plate fees are also recurring costs to legally operate a vehicle on public roads. While often categorized as fees, they frequently include a tax component that helps fund state transportation departments, road maintenance, and other public services. The amount of these fees can vary widely based on factors such as the vehicle’s type, weight, age, or value. Additionally, some states require vehicles to undergo emissions testing as a condition of annual or biennial registration, which may involve an associated fee.

Fuel Taxes

Motor fuels are subject to distinct taxes that are typically included in the pump price of gasoline and diesel. These taxes are primarily designed to fund transportation infrastructure. At the federal level, an excise tax is levied on both gasoline and diesel fuel purchases. This federal tax contributes to the Highway Trust Fund, which supports federal highway and mass transit programs.

The federal excise tax rate is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel, which includes a small fee for the Leaking Underground Storage Tank Trust Fund. In addition to the federal tax, each state levies its own fuel tax, which varies considerably from state to state. These state fuel taxes play a role in funding state and local road maintenance, bridge repairs, and other transportation projects.