Buying a new or used car is one of the largest purchases many people will ever make. This major investment brings both monetary and emotional considerations into play. You want to find the perfect vehicle to meet your needs and budget. Sales tax is one component that can significantly impact the final price you pay at the dealership. Understanding locations with no car sales tax provides unique savings opportunities worth exploring.
Depending on where you live, sales tax on vehicle purchases can add hundreds or even thousands of dollars to your out-the-door costs. However, five U.S. states with no sales tax on cars at all. Two other states waive sales tax on cars specifically. Let’s examine these state tax exemptions to find the best places to buy your next ride sales-tax-free.
How Car Sales Tax Works
State and local sales taxes typically apply to physical goods or products sold, versus services. Major purchases like vehicles tend to have higher tax amounts applied due to their significant value. However, sales tax rules and rates can vary widely by location.
Read More: Paying Car Sales Tax: Everything You Need To Know
Some areas might exempt food and medications while others tax those items fully. Different states also have diverse policies on taxing secondhand items, online purchases, business expenses, and more. When evaluating sales tax on vehicles, here are two key factors in play:
State Versus Local Sales Tax Rates
- State tax forms the baseline rate for a given area
- County, city, transportation or other local taxes often apply on top of state sales tax
- Local taxes can vary considerably even within the same state
Taxability of New Versus Used Car Sales
- New vehicle purchases typically incur full state and local sales tax
- Used vehicle sales are exempt in certain states or eligible for lowered tax rates
- Private party purchases of used cars may avoid sales tax entirely in some areas
Now we’ll analyze the five states with no general sales tax along with details on two additional states offering motor vehicle sales tax exemptions. Shopping for your next ride in these areas promises big savings free from both state and local sales taxes at time of purchase.
Read More: Can Car Sales Tax Be Financed? A Detailed Guide
States With No Sales Tax on Cars or General Sales Tax
We can categorize no sales tax states into two groups: 1) those with no state or local sales taxes at all and 2) those with no tax specifically on car purchases only. Let’s explore both types.
No General Sales Tax States
The following five states have no state or local sales taxes on any type of purchase. This includes new and used vehicles along with all other normally taxable goods.
Alaska
The Last Frontier lives up to its independent motto with no state income tax and no sales tax. Saving money is easy living in Alaska, especially on large transactions like automobile purchases. With rugged terrain and long driving distances, trucks and SUVs prove popular choices.
| Alaska | Tax Rate |
|---|---|
| State Sales Tax: | None |
| Avg Local Tax: | None |
| Avg Car Tax Rate: | 0% |
Read More: Missouri Car Sales Tax Calculator: Exemption & Administration Guide
Delaware
Delaware also takes a tax-free approach for shoppers. You’ll keep a few extra hundred dollars in your wallet when you drive that shiny new convertible off the lot. Delaware residents don’t pay annual car taxes either. Out-of-state students at the University of Delaware can even import vehicles tax-free.
| Delaware | Tax Rate |
|---|---|
| State Sales Tax: | None |
| Avg Local Tax: | None |
| Avg Car Tax Rate: | 0% |
Montana
Big Sky Country joins the club with zero general or automobile sales taxes for in-state transactions. Montana levies substantial income taxes instead to fund public services. Non-residents may qualify for sales tax refunds on car purchases over $5,500 when special criteria are met. From rugged pickups to luxury SUVs, all vehicles are tax exempt.
| Montana | Tax Rates |
|---|---|
| State Sales Tax: | None |
| Avg Local Tax: | None |
| Avg Car Tax Rate | 0% |
Read More: How to Buy a Car Without Paying Sales Tax? 3 Stretegies
New Hampshire
The Granite State takes a low-tax approach with no income tax and no sales tax on any goods or services. Preserving historic New England values, New Hampshire doesn’t “soak the taxpayers” with hidden taxes on automobile purchases. Both state residents and out-of-state buyers can save big at area auto dealers.
| New Hampshire | Tax Rates |
|---|---|
| State Sales Tax: | None |
| Avg Local Tax: | None |
| Avg Car Tax Rate | 0% |
Oregon
While not sales-tax-free across the board, Oregon does take a unique approach. No state or local sales taxes apply to any new or used vehicle purchases. Oregon charges elevated income taxes on upper earners along with real estate transaction taxes instead. Portland hipsters benefit from keeping more green in their pockets on that new Prius or Subaru.
Read More: Ways of Buying a Car in Oregon to Avoid Sales Tax
| Oregon | Tax Rates |
|---|---|
| State Sales Tax | None |
| Avg Local Tax: | None |
| Avg Car Tax Rate | 0% |
States With No Car Tax Only
Along with the five locations above with no sales tax at all, two other states waive sales tax on automobile purchases only. Let’s examine them:
South Carolina
The Palmetto State tweaks their overall 7% sales tax rate to exempt cars, trucks, and motorcycles completely. Even with local taxes, you’ll save an average of $15 million annually based on typical new car prices. South Carolina adds a one-time $500 infrastructure fee upon first registration to offset some lost revenue.
| South Carolina | Tax Rates |
|---|---|
| State Sales Tax: | None On Vehicles |
| Avg Local Tax: | Up To 3% |
| Avg Car Tax Rate | 0% |
Read More: Do You Have to Pay Sales Tax When Transferring a Car Title?
West Virginia
West Virginia diverges from their 6% state sales tax rate to incentivize automobile purchases. Consumers benefit from a 5% tax reduction, paying just 1% sales tax on new and used vehicles. Certain counties impose additional local taxes to still save buyers meaningful sums.
| West Virginia | Tax Rates |
|---|---|
| State Sales Tax: | 1% Tax On Vehicles |
| Avg Local Tax: | Up To 1% |
| Avg Car Tax Rate | 1% – 2% |
Key Takeaways
Reviewing the sales tax exemptions detailed above uncovers unique savings in seven different states:
- Five states levy no general sales taxes on any purchases
- Two extra states exclude autos only from sales taxes
- Hundreds to thousands of dollars can be saved on a single car transaction
- Both state residents and non-residents can benefit in most cases
Combining tax perks with negotiable purchase prices means much more money left in your pocket. So when sourcing that new truck, minivan, sedan or motorcycle, strongly consider heading to these no sales tax or car sales tax-free areas first.
Frequently Asked Questions
1. Do I still pay property taxes or registration fees if a state has no car sales tax?
Yes. While seven states offer exemptions on sales tax for vehicle purchases, other motor vehicle-related taxes and fees may still apply:
- Annual car registration fees
- Regular property taxes on owned vehicles
- Title transfer fees
- Transportation taxes and surcharges
- Gasoline taxes
Avoiding sales tax provides initial purchase savings. But you’ll still incur annual ownership costs tied to your car.
2. Can I buy a car in a no-sales tax state if I live somewhere else?
Possibly. Each state sets specific rules and criteria for offering sales tax exemptions to non-residents. Some impose time limits for how soon a vehicle must be registered or driven out-of-state. Closely check requirements with the car dealership and DMV before proceeding with a cross-border purchase.
3. Is there sales tax charged on used private party car sales?
It varies. Private person-to-person vehicle sales rather than dealer transactions may have different sales tax policies:
- Private sales are tax exempt in some no-sales tax states like Alaska and Montana
- Other locations require standard sales taxes be collected just like on a dealer sale
- Certain states let private sales forego sales taxes but charge higher registration fees later
If buying from your neighbor down the street, learn sales tax laws in your specific area on private purchases.
4. Which vehicles qualify for tax-free buying – just cars or trucks too?
Sales tax exemptions typically apply to any new or used motor vehicle purchase including:
- Cars
- Trucks
- SUVs
- Motorcycles
- Recreational Vehicles (RVs)
Some states may impose exceptions for commercial fleet vehicles, temporary rentals, or off-road vehicles. But all traditional consumer autos and trucks qualify. Electric and hybrid vehicles also get exemptions.
5. Can I save on sales tax when I trade in my old car or lease instead of buying?
- Trade-In Credits: The value of your trade-in counts as a down payment and reduces taxable purchase price in most states. This lowers total sales tax due.
- Leasing: Monthly lease payments are not subject to state sales tax. Some states charge a one-time upfront tax on leases.
Both options present additional ways to minimize sales tax depending on your situation. Performing a trade-in when buying another car in a no-sales tax state brings maximum savings via both incentives together.
Finding Additional Auto Tax Savings
Hopefully this state-by-state analysis gives clarity on where you can save big on automobile sales tax during your next purchase. But buying a car involves many complex financial decisions and fees beyond just sales tax:
- Getting approved for dealer financing or qualifying for pre-approval with your own lender
- Estimating your monthly car payment budget
- Negotiating the vehicle sales price
- Understanding add-on costs like extended warranties, rustproofing, or maintenance plans
- Navigating insurance requirements
These monetary factors intertwine to determine your true out-the-door price along with ongoing ownership costs. Thankfully, smart online tools exist to simplify each piece of the equation.
www.salestaxcalculator.online provides user-friendly sales tax calculators and guides to help optimize every facet of your automobile acquisition budgeting. Easily look up average car insurance rates, loan payment estimators, depreciation charts, gas spending forecasts, repair cost expectancies, and more. Everything ties together in a streamlined interface with no logins or emails required.
