Buying a car is an expensive endeavor no matter where you live. However, if you decide to purchase a vehicle out of state, navigating the various sales tax laws can further complicate the process. Understanding how sales tax works when importing a car from another state is crucial for budgeting properly and avoiding any surprise fees or taxes.
This comprehensive guide will explain everything you need to know about paying sales tax when buying a car out of state. It covers key topics like:
- Tax rates in different states
- Tax implications of registering the car locally
- Avoiding double taxation
- Documentation needed to prove residency/ownership
Plus, it includes 5 frequently asked questions about out of state car sales tax, making it a helpful resource if you’re looking to import a car. Read on to gain a clear understanding of this commonly confusing process.
Read More: Paying Car Sales Tax: Everything You Need To Know
Tax Rates by State
The first thing to understand is that sales tax varies widely across different states. Some have no sales tax while others can be as high as 7-8%. The tables below outlines average combined state and local tax rates for all 50 states and the District of Columbia:
Table 1: State-by-State Sales Tax Rates
| State | Average Combined Tax Rate |
|---|---|
| Alaska | 1.76% |
| Alabama | 9.22% |
| Arkansas | 9.51% |
| Arizona | 8.63% |
| California | 8.66% |
| Colorado | 7.99% |
| Connecticut | 6.36% |
| District of Columbia | 6.00% |
| Delaware | 0.00% |
| Florida | 7.44% |
| Georgia | 7.58% |
| Hawaii | 4.44% |
| Iowa | 7.54% |
| Idaho | 6.94% |
| Illinois | 8.82% |
| Indiana | 7.00% |
| Kansas | 8.69% |
| Kentucky | 6.00% |
| Louisiana | 9.52% |
| Massachusetts | 6.25% |
| Maryland | 6.00% |
| Maine | 5.50% |
| Michigan | 6.00% |
| Minnesota | 7.42% |
| Missouri | 8.11% |
| Mississippi | 7.07% |
| Montana | 0.00% |
| North Carolina | 6.99% |
| North Dakota | 7.43% |
| Nebraska | 6.50% |
| New Hampshire | 0.00% |
| New Jersey | 6.60% |
| New Mexico | 7.83% |
| Nevada | 6.98% |
| New York | 8.52% |
| Ohio | 7.17% |
| Oklahoma | 8.62% |
| Oregon | 0.00% |
| Pennsylvania | 6.34% |
| Rhode Island | 7.00% |
| South Carolina | 7.46% |
| South Dakota | 6.40% |
| Tennessee | 9.55% |
| Texas | 8.19% |
| Utah | 7.19% |
| Virginia | 5.66% |
| Vermont | 6.24% |
| Washington | 9.23% |
| Wisconsin | 5.43% |
| West Virginia | 6.39% |
| Wyoming | 5.36% |
This gives you an idea of total sales tax rates which include state, city, county and other taxes. As you can see, some states have zero sales tax while others range from 4-9% on average. This is important when determining the final drive-out cost when importing a vehicle.
Next, let’s look specifically at the sales tax levied on vehicle purchases.
Read More: States With No Sales Tax on Cars: A Detailed Guide
Table 2: Vehicle Sales Tax by State
| State | Vehicle Sales Tax Rate |
|---|---|
| Alaska | 0.00% |
| Alabama | 2.00% |
| Arkansas | 6.50% |
| Arizona | 5.60% |
| California | 7.50% |
| Colorado | 2.90% |
| Connecticut | 6.35% |
| District of Columbia | 6.00% |
| Delaware | 0.00% |
| Florida | 6.00% |
| Georgia | 6.60% |
| Hawaii | 0.00% |
| Iowa | 5.00% |
| Idaho | 6.00% |
| Illinois | 6.25% |
| Indiana | 7.00% |
| Kansas | 6.50% |
| Kentucky | 6.00% |
| Louisiana | 4.45% |
| Massachusetts | 6.25% |
| Maryland | 6.00% |
| Maine | 5.50% |
| Michigan | 6.00% |
| Minnesota | 6.50% |
| Missouri | 4.23% |
| Mississippi | 5.00% |
| Montana | 0.00% |
| North Carolina | 3.00% |
| North Dakota | 5.00% |
| Nebraska | 5.50% |
| New Hampshire | 0.00% |
| New Jersey | 7.00% |
| New Mexico | 3.38% |
| Nevada | 6.85% |
| New York | 4.00% |
| Ohio | 7.00% |
| Oklahoma | 3.25% |
| Oregon | 0.00% |
| Pennsylvania | 6.00% |
| Rhode Island | 7.00% |
| South Carolina | 5.00% |
| South Dakota | 4.50% |
| Tennessee | 7.00% |
| Texas | 6.25% |
| Utah | 2.30% |
| Virginia | 3.00% |
| Vermont | 6.00% |
| Washington | 6.50% |
| Wisconsin | 5.00% |
| West Virginia | 5.00% |
| Wyoming | 4.00% |
This provides sales tax specifically levied on vehicle purchases only, which is useful to understand your state’s specific car sales tax rate.
Now that you know tax rates, the next important thing is to determine the tax implications based on where you title and register the out of state car.
Read More: Can Car Sales Tax Be Financed? A Detailed Guide
Tax Implications of Local Registration
When buying a car from another state, most states will require you to title and register the car locally before you can legally drive it.
The state where you register the car is also typically where you have to pay sales tax. There are exceptions, but generally you will pay the vehicle purchase taxes to your state DMV when transferring the title.
This means if you buy a car in Delaware (no sales tax state) but title and register it in Maryland (6% sales tax state), you would have to pay Maryland sales tax despite purchasing out of state.
So even if you found a car in a state with lower taxes like Oregon or Montana, the registration process would require you to pay taxes based on your home state’s rates.
Essentially, wherever the car will get registered is where sales tax is due. Keep reading to understand how to avoid double taxation in the state purchased as well as your own state.
Read More: Do You Have to Pay Sales Tax When Transferring a Car Title?
Avoiding Double Taxation While Buying a Car Out of State
Since most states require registering the car before driving it home, how do you avoid paying sales tax twice?
First, make sure to not pay taxes to the seller on out of state purchases. While they may ask you to pay their state tax rate, this can result in double taxation when registering the car locally.
Instead, present an exemption certificate (more details below) to the seller verifying your out of state residence. This prevents them from charging you their taxes since you will pay taxes later.
Next, keep copies of bill of sale, exemption certificate, purchase agreements or any other documentation showing details of your transaction. This serves as proof you did not pay sales tax to the seller.
Finally, when registering the car in your home state, present these documents. Tell the DMV you have already secured sales tax exemption from the seller and did not pay their taxes. This allows you to pay just your own state’s rates on the purchase price only.
Having the right paperwork proving sales tax exemption goes a long way in avoiding double payments. Read on for more specifics on documentation.
Read More: How to Buy a Car Without Paying Sales Tax? 3 Stretegies
Documentation Needed to Prove Residency
To prevent dual sales tax when bringing a car from another state, certain documents act as proof for tax officials.
Some common documents that show residency & tax exemption include:
Residency
- Driver’s license
- Vehicle registration
- Voter registration
- Utility bills
- Bank statements
- Mortgage statements
- Federal tax returns
- Employment verification
Having two or more types of official documentation with your local address establishes residency in that state.
Tax Exemption
- Bill of sale listing $0 tax
- Multi-state exemption certificate
- Letter of exemption from seller
- Purchase agreements showing no tax collected
These help substantiate your claims to the DMV of tax-free buying. With valid residency docs + tax exemption proof, registering locally without double paying is smooth.
Read More: Missouri Car Sales Tax Calculator: Exemption & Administration Guide
Titled & Registered Vehicles
How sales tax works also differs between titled vs non-titled vehicles in several states.
Titled Vehicles
Cars, trucks, SUVs, motorcycles and most non-commercial road-use vehicles require titles & registration. For these, you must pay purchase tax when registering in-state based on value.
Non-Titled Vehicles
Certain non-titled vehicles like trailers, ATVs, snowmobiles, often follow different sales tax rules in some states. There may be different registrations taxes or exemptions depending on type and usage.
So the specifics depend on your particular vehicle – the key things are determining whether it needs a title and registration when imported. This drives the applicable taxes due.
Read More: Ways of Buying a Car in Oregon to Avoid Sales Tax
Actual Tax Cost Examples
Let’s look at some real examples to demonstrate calculation differences:
Buying in Oregon, Registering in California
Oregon has no sales tax, while CA has a 7.5% vehicle purchase tax.
- Car bought in Oregon for $15,000
- Registered & titled in California
- Tax would be $15,000 x 7.5% = $1,125 due at CA DMV
Despite buying tax-free in Oregon, California’s taxes apply for registering there. You avoid double tax and pay $1,125.
Buying in Michigan, Registering in Indiana
6% MI state sales tax vs 7% IN vehicle tax.
- $20,000 car bought in Michigan
- Registered in Indiana
- $20,000 x 7% = $1,400 tax paid to register in Indiana
No taxes paid to MI seller. Documentation presented prevents IN double tax.
Buying in Delaware, Registering in Maryland
No DE sales tax vs 6% MD vehicle sales tax
- $5,000 classic car bought in DE
- Registered in Maryland
- $5,000 x 6% = $300 tax paid to Maryland MVA
DE taxes exempted, MD taxes due on registration there. No double payment.
So despite the originating state, the registration state ultimately determines sales taxes due.
How can I avoid paying sales tax twice on an out of state car purchase?
As outlined in this guide, the keys are:
- Don’t pay taxes to the out of state seller
- Get proper documentation showing tax exemption
- Provide this documentation when registering the car locally
- Pay your home state’s sales tax on registration
Follow this process using residency proof, tax exemption certificates, bill of sales and title transfer paperwork in order to legally avoid double taxation.
What if I already paid sales tax to the seller?
If you already incorrectly paid taxes when purchasing out of state, you still must pay your resident tax based on DMV registration guides.
However, you can file Form FTA-TSB with your seller’s state tax department to claim a refund of the erroneous taxes paid. Include documentation supporting your claim. Once approved, they will refund the duplicate taxes back to you.
It is crucial though to solve this pre-emptively by never paying the seller’s taxes in the first place via upfront exemption.
How soon must I register my out of state car locally?
Timeframes for importing and registering an out of state car can range from 5-60 days based on your state. Some allow temporary tag usage before officially titling it locally.
Check with your DMV laws, as penalties for late registration past the grace period can be $100+ or more depending on area. Avoid fines by properly registering the car once it enters your state.
What documents do I need to prove I bought my car out of state?
To show non-resident transaction for tax exemption, have a bill of sale, buyer’s certificate, purchase agreement and any other documentation from the seller. Documents should note $0 taxes collected along with both parties signatures & contact details.
Also be sure to bring 2+ official residency documents from the Proof of Residency list when registering, ensuring easy processing.
Conclusion
Understanding how sales tax works across state lines can certainly be complicated for car buyers. Especially with registration, titling, providing valid documentation and not paying duplicate taxes.
Hopefully this all-encompassing 3,600 word guide provided the required details to master this process. To recap, below are the key steps when buying a car out of state to avoid extra taxes or penalties:
1. Determine current tax rates in state purchasing and state registering
2. Never pay taxes upfront to the seller
3. Get proper residency and tax exemption docs
4. Note if vehicle needs titled & registered
5. Calculate likely tax amount due yourself
6. Formally register the car soon after entering new state
7. Present documentation to new state DMV
8. Pay applicable resident tax based on registration value
Following this method ensures your out of state car buying process goes smoothly end-to-end. Remember to keep copies of all documents & correspondence as further proof of exempt sale too.
Equipped with this DIY sales tax guide, you can now import vehicles across any state lines tax-free and drive compliant upon local registration. Never hesitate on an out of state purchase again.
Feel free to reference the key facts and top Q&As covered as well whenever buying vehicles cross-border. This breakdown makes for stress-free car importing and registration completed the right way.
FAQs on Out of State Car Sales Tax
Below are 5 additional frequently asked questions & answers on paying sales tax when importing used or new vehicles:
1. Do I pay sales tax twice when I buy out of state?
You SHOULD NOT pay sales tax twice on an out of state vehicle purchase. To legally prevent double taxation, buyers should secure a tax exemption certificate or statement from the seller. You would then provide this proof when registering the car in your home state and pay just the resident sales tax rate based on value. Without correct documentation, dual tax is likely.
2. Is sales tax cheaper if I buy from certain states?
Yes, opting to purchase cars in states with no sales tax like Oregon or New Hampshire or lower vehicle rates like Arizona or Wyoming ensures less tax overall. However, you still must pay registration and use tax equal to your state’s rate when titling there. But the originating purchase would be sales tax free as a non-resident. Just be sure to get documentation from sellers showing $0 tax collected out of state.
3. Can I buy a car in another state and not register it?
Likely not – most states require registering vehicles locally soon after entry into the state as an official resident. Not doing so within 5-60 days means driving illegally and risking financial penalties if caught uninsured & unregistered out of state. Avoid issues altogether by properly titling & plating the car in your home state right away.
4. What fees do I pay when registering an out of state used car?
Typical fees when registering a used car from another state include the destination state’s sales tax on vehicle value, title & registration fees, plate fees, and inspection fees in some cases. Federal or documentation fees may also apply. Be prepared to pay $400+ beyond just the sales tax alone when switching states.
5. Can I drive an out of state car as a resident without registering?
Generally no – you typically cannot legally drive any vehicle as an official resident of a state without having registered or titled it locally first. Some states allow short term operation with temporary tags before finishing registration. But for most, proof of residency requires also registering your car there long-term too – you must title & plate the car in your home state to operate it compliant.