The inclusion of sales tax must be considered when budgeting for a new car. It can be significant in some cases. For example, Orange County, California sales tax is 8.75 percent (as of 2010). With such a high sales tax percentage, it is important you not only budget for the purchase price of your car, but also factor sales tax into your calculations. There are a few ways for you to determine how much car tax is owed.
Calculate the final purchase price of your vehicle. Your final purchase price can vary if you have a vehicle to trade-in or if there is a dealership cash incentive. For example, for a $25,000 car with a $10,000 trade-in credit and $2,000 cash incentive, you would only pay tax on the remaining $13,000 instead of the full $25,000.
Contact the dealership's Finance manager or look-up your county's sales tax on the Department of Revenue website before purchasing to ensure you are getting the best rate possible (see Resources). Auto sales tax is normally based on the county in which you reside, not the county in which the car is purchased.
Calculate the car tax by taking the final purchase price and multiplying it by the county sales tax. For example, if you reside in Orange County, California and the final purchase price after trade-in and incentives is $10,000, the final sales tax is $10,000 multiplied by 8.75 percent (.0875), which equals $875.
