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If I Buy a Car in Another State Where Do I Pay Sales Tax?

By Michael O'Connor | September 25, 2023

Where Do I Pay Sales Tax When Buying Out of State?

Generally, when you buy a car out of state, you will pay the sales tax in the state that you register it in. While you may think that you can save some money by purchasing the vehicle in a state with a lower sales tax rate than your home state, this is usually not the case. There are a lot of different circumstances regarding how you pay sales tax on a car and how much you will be responsible for paying. Knowing how car sales tax works will help you plan for your purchase and make it as easy as possible.

There are a lot of things to consider when buying a new or used car. Making the right choice is essential if you want to make the most of the purchase and get a vehicle that will last you as long as possible. While the price of a vehicle is important, you should also remember that there are other costs beyond the number that is listed. This includes sales tax and even if you buy the car in a state outside of where you live, you will still be obligated to pay it.

Reasons to Buy a Car Out of State

Sometimes, buying a new vehicle in a different state than the one you live in makes the most financial sense. The purchase price of used and new cars will be different in every area and taking advantage of that when you can is one of the best ways to save money on a vehicle purchase. Supply and demand will change drastically from state to state and will also depend heavily on the type of vehicle you are looking to buy. Even if you still have to pay your home state’s tax rate, you could end up saving money in the long run by getting a better price on an out-of-state car.

If you are someone who is interested in rare or vintage cars, going across state lines may be your only option for finding the motor vehicle you are looking for. If you are in the market for a rare vehicle, though, finding the best deal most likely isn’t your main goal. However, there may be certain tax exemptions available to you if you are buying a car that is over 40 years old. Knowing what the laws are in both the state you are buying the car in and your home state will help you be ready for your financial obligations.

How to Pay Sales Tax After a Private Party Purchase

The process of paying the sales tax after buying a car will change depending on how you bought it and where you bought it from. If you are buying a used vehicle, the chances are good that you are making the purchase through a private party, which means it is your responsibility to take care of all the state taxes involved. Generally, when you go to the Department of Motor Vehicles to register the car in your name and get a new title, the DMV will charge you the state and local sales tax. However, this may not always be the case, so you should know the laws in your particular state.

If you are planning on driving the car home from the state you purchased it in, the car will need to have up-to-date registration and a current license plate. If the car is registered in the state where you bought it, you will change that state registration and pay the registration fees when you put it in your name. If the car isn’t registered, you may have to get a temporary vehicle registration in the state where you purchased it in order to drive it home. In this case, the local DMV in that state may charge you state tax when you get the temporary registration. Because of this, get a bill of sale from the seller and keep all the paperwork from the DMV. This way, you won’t be charged state sales tax again when you go to register it in your state of residence.

How to Pay Sales Tax After a Dealership Purchase

The car-buying process when you purchase a vehicle at a dealership is much less of a hassle than it is with private party sales when it comes time to pay taxes. Whether you are going to an out-of-state dealership for a better deal on the car purchase itself or you simply are going to get more for your trade-in if you go to a neighboring state, the dealership will more often than not take care of the sales tax for you.

Usually, you will pay your sales tax at the dealership and they will forward it to the appropriate motor vehicle administration offices where you are taking the car. Using your driver’s license, they will determine how much you will owe and where everything needs to be sent. However, it is still incredibly important that you retain all the paperwork and receipts from the purchase at the dealership. You can present this information at the DMV when you go to register it in your name and ensure that you are not getting double charged if the dealership did not forward the taxes to the right office.

What States Have No Sales Tax?

Depending on where you live, your tax obligations may be smaller than they are in other states. In fact, some states have no sales tax on vehicle purchases at all. As of 2023, there are five states in the U.S. that don’t have any sales tax when buying cars. These states are Alaska, Delaware, Montana, New Hampshire, and Oregon. However, if you are buying the car in one of these states and registering it in another one, you will still be liable for the taxes that your home state charges for vehicle purchases and will be responsible for them when you register the vehicle.

What States Have the Highest Sales Tax?

Every state has its own tax rate for sales, including vehicle sales. Just like with other types of taxes, some states have much higher rates than others and you will be obligated to pay a lot more when you buy a car. Currently, Nevada has the highest sales tax rate in the country at 8%, while Tennessee, Rhode Island, Illinois, Indiana, California, and Kansas all have sales tax rates of 7% or more. Knowing what the rate is for your home state is essential if you want to be sure that you will have enough money to take care of the entirety of the purchase.

Other Things to Consider When Buying a Vehicle Out of State:

When buying a car in another state, your sales tax obligations should be a concern but there are also other factors to keep in mind. Every state has its own set of laws and regulations when it comes to buying a car and if you want to avoid fees and fines, you should know what they are.

This includes the laws in the state where you are making the purchase as well as the state where you are going to register the vehicle. Knowing what these considerations are will help you make the purchase go as smoothly as possible.

1. Emissions Tests

Before you decide to buy a car in another state, be sure to find out what kind of emissions equipment it has. Every state has different standards for emissions and the car will usually need to pass an emissions test before you can register it in your home state. For example, a car purchased in Nevada may not have the right equipment to pass a check in California. Understanding what the standards are in your state and what equipment the vehicle you are purchasing will help you decide if buying out of state is the wisest financial choice.

2. State Inspections

Nearly half of the states in the U.S. require vehicle inspections before you can register a car with the DMV. When you buy a car in another state, you need to be certain that it can pass the inspection in the state in which you are going to register it. Otherwise, you could be looking at some costly repairs just to get it in good enough condition to get through the inspection process. It can be helpful to get a vehicle history report from CARFAX before you make the purchase just so you can see if the car has been in any major accidents or had any issues with the title. This way, you can have a good idea of its overall condition before you move forward with the purchase.

3. Car Insurance

Every state has its own laws regarding car insurance and what type is required to drive there. If you are driving the car home, be sure to have insurance for the vehicle you are purchasing that will be valid in the state where you are buying it as well as your home state. This should be ready to go before you make the purchase and your insurance company should be aware of your intentions so they can provide you with the coverage you need.

Is it Possible to Avoid Paying Vehicle Sales Tax?

While you will almost always be responsible for paying state sales tax when you buy a car, there are a few exceptions. If, for example, you are buying a vehicle that is more than 40 years old on January 1st of that year, you will not be required to pay sales tax on it. Some vehicles will also be exempt from sales tax if they are going to be used for agricultural purposes but this will vary from state to state. In general, it is a good idea to have enough money to pay the sales tax and if you are able to get an exemption you will come out ahead. Not every state makes exemptions, though, and you should be certain that you are able to fulfill your obligations should you have to.

Final Thoughts

Finding the right car for you and your driving needs can be difficult. However, if you can expand your search area, you should be able to find something that will give you everything you need and provide many years of good service. Knowing what your tax obligations are when purchasing a vehicle in another state will help the whole process go as smoothly as possible so you can enjoy your new car with no issues.