by Jim Thompson |
Last Updated: January 11, 2021 Buying a used car is an excellent way to save money over buying new, but even a used car comes with a sales tax that you’ll have to cover. It’s important to take the time to learn what the sales tax amount is before you buy the vehicle. Without knowing what the sales tax amount is going to be, you might be a bit surprised when it comes time to finalize your purchase, and you wind up with a case of sticker shock.
Know Your Percentage
Throughout the US, most states have a sales tax rate on used cars that you’ll have to pay unless you’re lucky enough to live in Alaska or Oregon. The amount is usually somewhere between 2% and 6% of the vehicle’s total purchase price. To find out specifically the tax percentage, take a moment to look it up for your state. For instance, in New York state, the amount is 4% of the car’s value. That means a $10,000 car would have a tax cost of $400, which is a pretty significant sum. To figure that out, I multiplied 10,000 by .04, which is the decimal version of 4%. But, figuring out the tax isn’t always so simple. You also have to consider any trade-ins if you have one.
Consider Trade-ins
In many states, you only have to pay taxes on the net value of the used vehicle that you purchased. If you trade in your old car and receive $3,000 towards that $10,000 purchase price, it would be a net price of $7,000 for the used car. That would lower the taxes to $280 if we kept that same 4% used car tax, which is noticeably more affordable. You have to find out if trade-in values are removed from the total tax amount or not in your state if you’re going to trade in your vehicle.
Keep These Numbers in Mind
When you find out the after-tax total on that car you have your eye on, you’ll know what you are actually going to spend. This is important for people who have a set amount of money to spend on a used car, and most of us do. That’s why you should figure out what the tax rate is for your state before deciding how much you can afford from that used car dealership. You need to know the end price, not the pre-tax price when making that final purchase decision.
When you fully understand the used car tax rules in your state, it’s pretty simple to calculate the total amount of tax that you have to pay at the time of purchase. Make sure you know what that tax amount is so you can verify that you’re paying the dealership the proper amount and know how much you’re going to spend on that “affordable” used vehicle. The price could be significantly higher than you were originally expecting.