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August 10, 2021
Before making a vehicle purchase, you should understand the total cost. The purchase price of a vehicle is only one part of your out-the-door cost. Sales tax is another fee that can cost you hundreds or thousands of dollars.
Compared to some other states, Alabama has a fairly low vehicle sales tax.
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According to the Alabama Department of Revenue, Alabama charges 2% for auto sales tax. The actual sales tax may vary depending on the location, as some counties/cities charge additional local taxes.
In some parts of Alabama, you may pay up to 4% in car sales tax with local taxes. 2% is the statewide sales tax.
To calculate the car sales tax in Alabama, you must know your local sales tax fees. The Alabama Department of Revenue provides a helpful calculator. You must enter your county or city to look for the rates.
For example, after entering “Baldwin” as the county, you’ll be asked to choose a locality name. You can also select your locality name for the most accurate number. We selected “Foley”. The calculator then displays a .5% auto tax rate.
To determine the sales tax on a car, add the local tax rate (so .5% in this case) to the statewide 2%. That means the total sales tax on a car in Foley (Baldwin County, Alabama) is 2.5%.
Then, multiply the car price by 2.5% to see what you’d pay in taxes. Keep in mind that the original price is used with rebates/incentives, but the price after trade-in credit is used if a trade-in is involved.
Calculate Car Sales Tax in Alabama Example:
- Vehicle Price: $20,000
- Rebates: $2,000
- Trade-In Value: $8,000
- Total Vehicle Cost to Buyer: $10,000
- Price Used to Calculate Sales Tax: $12,000
- Sales Tax: 12,000 X .025 = $300
The same auto tax fee applies to used vehicles. Those who register a vehicle in Alabama must still pay a minimum of 2% in vehicle sales tax.
There is no easy method for quickly comparing the auto tax rates of every city in Alabama. For example, Flomaton has a very high city sales tax rate of 11%. However, they only charge 1% for the local auto tax, meaning you’d pay a total of 3% auto tax there.
The best way to see the auto tax rate for any given city in Alabama is to use the Department of Revenue’s search calculator function. Enter the city name you are looking for, and you can view the auto tax rate for that city.
Trading in your vehicle allows you to reduce the purchase price of a new vehicle. In Alabama, the auto sales tax is applied to the price of the vehicle after trade-in credits. Therefore, trading in your vehicle reduces the taxable price of the new vehicle.
For example, consider a new vehicle that costs $15,000. You trade in your old vehicle and receive a $6,000 credit. The out-of-pocket cost for the new vehicle is $9,000 after trade-in. In Alabama, you will only have to pay sales tax on the $9,000 you paid for the vehicle after trade-in.
The 2% automotive sales tax applies to cars sold privately as well. You must calculate the total sales tax for the city you will register the vehicle in and pay the sales tax. You have 20 calendar days from the date of purchase to title and register the vehicle.
Manufacturer rebates and dealer cash incentives are common strategies dealerships use to encourage sales. While the rebates or incentives may lower your out-of-pocket cost for the vehicle, they will not reduce the car sales tax you must pay. Alabama auto taxes apply to the vehicle price before incentives or rebates.
If you find a vehicle for $20,000 that includes a $2,000 rebate, this lowers the price to $18,000. However, you will have to pay sales tax for the $20,000 full price of the vehicle.
The average cost of DMV fees in Alabama is $469.
Most dealerships charge a documentation fee for the cost of filing the contract, sales tax, and other documents. The doc fee varies depending on the dealership and vehicle, and there’s no limit to what dealers in Alabama can charge. The average documentation fee in Alabama is $485.
Certain charitable and nonprofit organizations can obtain a certificate of exemption from the Department of Revenue to purchase vehicles tax-free.
Gifted vehicles are also exempt from car sales tax.
Furthermore, any vehicles sold and paid for by the Poarch Band of Creek Indians are exempt from sales tax when they are delivered to reservation land.
Compared to other states, Alabama offers minimal rebates and incentives. For consumers, they do not have any state EV incentives regarding vehicle tax. However, there are utility incentives. For example, Alabama residents who own or lease a plug-in electric vehicle can enjoy a discounted TOU rate for energy consumed.
Tax information and rates are subject to change, please be sure to verify with your local DMV.
Alabama’s car sales tax is 2%. However, counties and cities may charge additional tax on top of the 2%. Therefore, sales tax in Alabama will begin at 2% but varies based on location. You can use Alabama’s Department of Revenue calculator to view sales tax for your location.
Yes, you must still pay sales tax on a used car in Alabama. The 2% sales tax rate is the same for new and used cars.
It’s very difficult to compare the auto tax rate for every city in Alabama at once. However, you can look for the auto tax rate of any specific city by entering the city name into the search feature from the Alabama Department of Revenue.
You do not owe car sales tax on a gifted vehicle in Alabama.
The base registration fee for a vehicle in Alabama is $23 per year.
Yes, a trade-in reduces the sales tax in Alabama. You must pay sales tax on the price of the vehicle after trade-in. For example, if the vehicle originally costs $15,000 and you trade one in for $6,000, the cost of the vehicle drops to $9,000. You must only pay sales tax on the $9,000 post-trade-in price.
To avoid paying sales tax on a car in Alabama, you must meet the exemption criteria. One example is with a gifted vehicle.
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