How to Avoid Paying Car Sales Tax: The Legal Way

Avoid Paying Car Sales Tax

Sales tax is yet another fee that can drastically increase the price of a vehicle. Understandably, many people wonder if there are ways to avoid paying sales tax on a car purchase.

While there are not a ton of exceptions, there are a few key ways you can avoid paying sales tax on a car.

How to Avoid Paying Car Sales Tax Video

Can I Avoid Paying Sales Tax on a Car?

There are a few cases where you can legally avoid paying sales tax on a car. Keep in mind that not paying sales tax when the situation permits is tax evasion, which is punishable by law.

Tax avoidance is the legal method to lower the amount of tax owed. There are some ways to avoid paying sales tax that is not evasion, but understanding the difference is important.

How to Avoid Paying Car Sales Tax

How to Avoid Car Sales TaxGetting out of paying sales tax for a car is a seldom occurrence, but there exist some legal avenues that you can explore. It's good to understand how to avoid car sales tax if you can, especially when you're planning to purchase a new or used vehicle. 

States Without Sales Tax

Some states do not have car sales tax. Therefore, if you buy and register your vehicle in one of these states, you would not have to pay this type of tax. Bear in mind that sales tax is typically paid where you reside and register the car, so this strategy requires you to have a legitimate residence in a state without car sales tax

While buying a car from out of state might seem like a clever method to save on the vehicle's price, it, unfortunately, won't exempt you from paying sales tax. However, even if you do not live in a state without sales tax, there may be ways to benefit from this perk if you own a business or property there, providing an avenue on how to avoid car sales tax. 

Even if you do not live in a state without sales tax, you may be able to take advantage of that perk if you have a business or property there.

Buy Before Moving

Should you have plans to relocate to a state with no or lower sales tax, it would be prudent to register your new vehicle in that state. It's important to note that if you purchase a vehicle within 90 days of moving, you're typically allowed to register the car in your new state. This approach is a practical way to strategically plan your vehicle purchase while understanding how to avoid car sales tax.

Car Sales Tax Exemptions

Car Sales Tax ExemptionsThere are several exemptions for car sales tax, including:

  • Historic vehicles made before 1973.
  • Vehicles used for agriculture or forestry.
  • Disabled car owners do not have to pay sales tax.

If you meet any of the exemptions listed, you must display your exemption certificate on your vehicle.

Claim Tax Credits

Electric Vehicles (EVs) can be an excellent option for saving on taxes when purchasing a new car. Unfortunately, these tax credits typically cannot be claimed when buying a used EV or leasing a vehicle.

Most of the time, the tax credits earned as incentives for buying EVs will outweigh the sales tax, making it a smart choice for those looking to understand how to avoid car sales tax.

Make sure you know how the federal and state tax credits and incentives work if you plan to purchase an EV.

Disabled Customers

Oftentimes, disabled individuals are exempt from paying vehicle sales tax on their purchases. However, the criteria for disability can differ by state, so it's crucial to check the specific policies in your jurisdiction. Regardless of whether you're required to pay sales tax on the car, you might be eligible for manufacturer assistance in installing any necessary mobility equipment. This benefit is a part of various mobility car deals, further easing the financial burden of owning a vehicle. Learn more about mobility car deals.

Will I Save Money Tax

Will I Save Money?

Sales tax varies by state, but overall it will add several hundred, or even a thousand, dollars onto the price of buying a car. If you are legally able to avoid paying sales tax for a car, it will save you some money.

For example, sales tax in California is 7.25%. If you purchase a used Honda Civic for $10,000, you will have to pay an additional $725 in sales tax.

What Is the Drawback?

The primary drawback of avoiding car sales tax is that it is not often possible. There are very few situations that allow people to avoid paying car sales tax.

As a car buyer, you should examine every angle for how you can save on your purchase, including sales tax. However, you must still adhere to the law and pay sales tax when necessary.

Frequently Asked Questions

Can I avoid paying sales tax on a used car?

You can avoid paying sales tax on a used car in some situations. Some states do not even have a sales tax on used car sales.

How can I avoid paying sales tax on a used car?

You can avoid paying sales tax on a used car by meeting the exemption circumstances, which include:

  • You will register the vehicle in a state with no sales tax because you live or have a business there.
  • You plan to move to a state without sales tax within 90 days of the vehicle purchase.
  • The vehicle was made before 1973
  • You are disabled
  • The vehicle is used for horticulture, agriculture, or forestry.
  • You apply for EV tax credits that cover the cost of sales tax.

What states have the lowest sales tax?

Some states do not have any sales tax. For example, Montana and New Hampshire are two states that do not charge sales tax on cars. For a full list of states with no or low sales tax, head to this post.

For which state do I pay the sales tax, where it was purchased or registered?

You must pay the sales tax for the state you register the car in, regardless of where it was purchased.

Will I save money by not paying sales tax?

If you can avoid paying sales tax, you will save some money. The amount of money depends on your car purchase price and the sales tax percentage, but it can be thousands of dollars.

Is avoiding sales tax illegal?

There are legal ways to avoid paying sales tax. However, falsifying information or refusing to pay sales tax when owed is illegal and known as tax evasion.