Vehicle taxes, sales tax, property taxes, and transfer fees – they catch a lot of car buyers unaware. Whether you are buying a new or used car, it pays to be ready with the high purchase price, as well as taxes and fees. You can save yourself a significant headache by budgeting for it first.
In this article:
- What Are Vehicle Taxes?
- How Do You Pay Your Vehicle Property Tax?
- What Are Vehicle Sales Taxes?
- How Much Will Your Sales Tax Be?
- How Do You Pay Your Vehicle Taxes?
- Are There Any Additional Fees?
- What Happens If You Do Not Pay Your Vehicle Taxes?
Vehicle Taxes | Your Guide to Paying and Processing Your Car’s Tax Due
What Are Vehicle Taxes?
Vehicle taxes are a tax levied in a total of 27 states. You need to pay a personal property tax on your car, calculated based on the value of your vehicle, every tax year as long as you own that car. This is separate from vehicle sales taxes you pay only when the motor vehicle is first purchased from another entity.
Some states do not charge property tax on the vehicle. Others use a percentage of value. Here is a general list organized by percentage:
- 0.10% to 1.00%: Louisiana, Michigan, California, Alabama, Iowa, and Arkansas
- 1.01% to 2.00%: Kentucky, Indiana, North Carolina, Montana, Minnesota, Nebraska, West Virginia, Arizona, Nevada, Colorado, New Hampshire, and Wyoming
- 2.01% to 3.00%: Kansas, Massachusetts, Maine, Missouri, Connecticut, and South Carolina
- 3.01% to 4.00%: Mississippi
- 4.01% to 5.00%: Virginia and Rhode Island
States that do not have any form of vehicle property tax are Alaska, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Maryland, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, and Wisconsin.
Now, for the good news: like real estate property tax, automobile property taxes are deductible on the tax return. You do not need to pay income tax on the amount of money you paid. Automobile taxes also tend to go down year over year because your car depreciates in value over time.
Car property taxes are spent on public work programs, such as fire departments, police forces, community colleges, and public schools. If you request it from the government, you can often get a specific breakdown of what your taxes paid for.
How Do You Pay Your Vehicle Property Tax?
The Department of Motor Vehicles (DMV) usually collects the payments for vehicle taxes. You will need to pay this to register your motor vehicle.
When you go to register your vehicle, the DMV will have records available regarding how much you owe in property taxes, and you can pay with the office directly. Some DMV offices have online payment systems that can streamline this process.
If you are not certain whether you have paid your vehicle taxes (or you want to know the exact amount of your vehicle property taxes), call your local DMV in advance to inquire.
What Are Vehicle Sales Taxes?
Vehicle sales taxes are another form of value-based tax on a motor vehicle – but do not confuse them with vehicle property taxes.
Instead, vehicle sales taxes are a sales tax related to the purchase of a car. Unlike many other purchases, it is often not part of the total cost of the car when you purchased it. Instead, you often need to send this amount separately.
While vehicle taxes only exist in about half the states, vehicle sales taxes are levied by nearly every state. The exceptions are:
- Delaware
- Montana
- New Hampshire
- Oregon
Alaska has no state vehicle taxes, but it does allow municipalities to charge state taxes on their own. Forty-five states in total charge sales tax, with 34 of those states allowing for municipalities and counties to charge their own local sales tax.
How Much Will Your Sales Tax Be?
Your sales tax rate is highly dependent on where you buy your motor vehicle from. Sales tax is broken down into:
- State sales tax, set by the state
- Local sales tax, set by the county or municipality
Sales tax can range from 9.44% in Tennessee to 4.35% in Hawaii. Once you know your sales tax rate, you can calculate your rate based on:
- The total purchase price of your vehicle, if you did not have a trade-in allowance or any type of discount.
- The modified price of your vehicle, if you did have a trade-in or a discount
Most dealerships will calculate your vehicle taxes for you. However, if you are purchasing a car from an independent owner, you may need to do these calculations on your own.
How Do You Pay Your Vehicle Taxes?
Paying your vehicle taxes require you go down to the DMV. If you are working through a dealership, it will often help you prepare the paperwork so you can submit it.
If you are not going through a dealership, visit your local DMV and request the required forms. Your DMV will help you calculate and pay your taxes.
Can You Roll Your Vehicle Sales Taxes into Your Loan?
It is possible to roll sales taxes into a loan. You can also roll other DMV fees into the loan if the dealership or lender agrees to it.
However, there is a catch: this can alter the loan-to-value amount. Most lenders will only advance up to a certain amount of a car’s value.
If you are going to purchase a $10,000 car and the lender is willing to complete a loan at 120% of the car’s value, then you can get a loan up to $12,000.
If you already have $1,000 in lender fees and another $500 in warranty costs, you have already spent $11,500 of that loan. You only have another $500 you can spend on things such as vehicle taxes.
For most people, it will be better to pay your sales taxes separately. If you roll your sales taxes into the cost of the loan, you will ultimately be paying interest on that sales tax for the life of your loan.
Are There Any Additional Fees?
When purchasing a vehicle, you will also need to pay for a title transfer fee. It is necessary anytime a vehicle transfers ownership, even if the car is a gift.
However, a title transfer fee is usually fairly minimal. On average, it will not be more than $25.
There are additional fees for owning a car. In some states, you will need to pay for your vehicle for inspection. You will also have its registration. Depending on your state, your vehicle registration fees may be calculated by:
- Flat rate
- Weight
- Value
- Age
- Other
Vehicle registration fees vary from as low as $8 in Arkansas to as high as $225 in Florida.
What Happens If You Do Not Pay Your Vehicle Taxes?
If you do not pay your vehicle taxes, you will not be able to register your vehicle. An inability to register your vehicle will keep your car off the road.
If you remain delinquent on your taxes, the state may take action to collect. It is often up to the state’s discretion regarding how aggressive their collection activity will be.
The collection often begins with the process of a tax lien levied against a specific property, such as a vehicle. It can prevent you from selling that vehicle without first resolving that lien.
If you have a $10,000 car and a lien of $2,000 against it, selling the car will effectively result in you getting $8,000, having to resolve the $2,000 lien with the proceeds of the sale.
If you continue to remain delinquent even after a lien has been filed, your local taxing authority may start to garnish your bank accounts for the amount due. You will get a notice before it happens, and generally, you will have some time to resolve the issue before it becomes serious.
Collection actions may go on your credit report and may impact you for some time to come. Taxes are a necessary aspect of owning a vehicle, and you should always consider your taxes when purchasing a new car. Vehicle property taxes and vehicle sales taxes are both according to vehicle value, so these taxes are going to increase depending on the cost of the car you purchased.
If you have any questions about how much you owe in vehicle taxes or how to calculate it, your local DMV can help. As they are incredibly state and county specific, it can be difficult to determine exactly how much you will owe without consulting with your local county tax assessor.
How much do you pay for vehicle taxes? Comment your answers below.