Tag Archives: car sales tax
When you get a lower than expected trade-in appraisal at the dealership, it can be tempting to stop negotiations. You may believe you could get a better offer somewhere else. While this may be true, you must remember to factor in tax savings to perform a true comparison.
Most states will credit the value of your trade-in when determining the purchase price for sales tax calculations. This can result in a nice discount off the total amount you’ll pay. If you were to sell your car independently, you would not be able to take advantage of this savings.
Remember this trade-in formula:
trade in value times 6%* = tax savings
*Sales tax varies from state to state, so use your own state's tax %, but 6% is the norm.
If you were to buy a $25,000 car and had a trade-in worth $15,000, your sales tax would be on $10,000 instead of the full $25,000.
If your tax rate is 6%, that would result in a savings of $900.
$15,000 X .06 = $900
So if your appraisal is up to $900 less than what you could get independently, you’re still better off selling to the dealer.
And of course it's less of a hassle as well.