Buying a used car has its benefits. Used cars are often cheaper than new cars, and if you can find a good one that has fewer than 60,000 to 100,000 miles on it, you may be getting a very good deal. However, there are some additional fees you’ll have to pay in addition to the sales price, such as sales tax.
Different states have different rules on how to calculate the sales tax on a used car. The sales tax may also differ based on how much the car weighs, what county it was registered in originally, what type of license plates are requested and what state you live in.
In Florida, for example, car buyers must pay 6 percent sales tax on the total purchase price, after any trade-in value has been deducted. In Pinellas County, buyers must pay an additional 1 percent on the first $5,000, at the time of publication. This means a vehicle that costs $2,000 will incur $140 in taxes. Denver, however, has a 2.9-percent state sales tax and imposes an additional 1.1 percent Regional Transportation District tax, as well as a 3.65-percent Denver city tax on the total purchase price of the vehicle after any trade-in value has been deducted. This means a vehicle that costs $2,000 will incur $153 in taxes.
DMV.org has a handy sales tax calculator you can use for buying a used vehicle in your area, which should give you a good idea of what your total outlay in terms of overhead costs and taxes is going to be, to allow budgeting for the right car. It also gives you an idea of how much you should be spending on a given car, thus allowing you to spot any hidden costs, or riders, tacked on by the seller.
If you’re looking for a rough estimate, consider that the state sales tax ranges from 3 percent in some states to as high as 8 percent in others, and the national average state sales tax is about 5.75 percent. Therefore, if you buy a used vehicle for $2,000 in a state that has a 6-percent sales tax, you’ll have to pay an additional $120 on top of the closing price.
In addition to state-specific sales taxes, some cities, counties and school districts may levy their own taxes on a newly purchased car, whether it is brand new or used. Your local motor vehicles agency office should be able to tell you how much these local taxes are, if applicable.
One way you can reduce the amount you pay in taxes is to trade in your old vehicle. In case of deals where a trade-in is involved, you are required to pay sales tax only on the difference between the value of your new car and old car you’re trading in.
Another option often offered by dealerships is customer cash-back deals or rebates. However, to cash in on these deals, you’d have to check your state laws beforehand to see if the sales tax is applied before the rebate or after. For example, Connecticut, sales tax is applied on the original price, so even in case of a cash-back deal or rebate, you’d still end up paying sales tax on the original price of the car.
