How to Avoid Paying Car Sales Tax: The Legal Way
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.
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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
Getting out of paying sales tax for a car is rare, but there are a few ways.
States Without Sales Tax
Some states do not have car sales tax. If you buy and register your car in a state without sales tax for car purchases, then you will not have to pay this. Keep in mind that you pay sales tax for where you reside and register the car.
While buying a car from out of state can help you save on the cost of the car, it won’t get you out of paying sales tax on it.
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
If you plan to move to a state with no or lower sales tax, then you should register your new vehicle in that state. If you purchase a vehicle within 90 days of moving, you can register the car in the new state.
Car Sales Tax Exemptions
There 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
EVs can also help you save on taxes when buying a new car. You cannot claim the credits when buying a used EV or leasing a car. Most of the time, the tax credits you can earn as incentives for buying EVs will outweigh the sales tax you pay.
Make sure you know how the federal and state tax credits and incentives work if you plan to purchase an EV.
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.