When you move forward with your car buying application, most states levy a sales tax. If you are buying a two wheel vehicle or a four wheel vehicle you need to pay some amount as a tax to your state. But it is not clear how much tax you need to pay to the state. It is difficult to know because every state takes a different amount for taxes. Before you go car buying across state lines, you need to make sure how to pay the state sales tax correctly, so you don’t get a tax evasion fine.
If I Buy a Car in Another State, Where Do I Pay Sales Tax?
When you buy a car in a different state than your home state, the dealer collects your sales tax & sends it to the relevant agency in your home state. So you don’t have to worry about any sales tax as you don’t have to follow any new rule. When the Department of Motor Vehicle moves forward with registering your vehicle they need everything from your bill of sale to ensure you pay the sales tax. Dealers often tax out of state buyers the amount they’d pay if they lived there, so you may have to make up the difference if your home state’s tax rate is higher.
So you need to register at the DMV & make sure you get a bill of sale for your vehicle purchase with the tax included. So you don’t have to pay another sales tax because the dealer many times forgets to share this information with the DMV. You need to remember there are approximately 10,000 sales tax jurisdictions in the US which includes cities, countries, & other districts, & each jurisdiction has its own tax laws.
How Much Sales Tax Do I Need to Pay for My Motor Vehicle?
It depends on your home state & the state in which you bought the car. Many states have reciprocal tax relationships, in which they provide credits to each other whenever their residents pay sales taxes across the state lines. For instance, Arizona has reciprocal tax agreements with Oregon, Virginia, Indiana & even California. So, if you buy a car in Arizona but you are a resident in California, then you may be exempt from paying the sales tax in Arizona, though they must still pay it in California. If you buy a car from a private seller instead of a dealer, then you have liberty in paying sales tax when you register it in your state.
Loopholes to Avoid Paying Sales Tax on Cars
Sales in many states are very hefty and that is why people try to avoid them. You will be amazed to know that there are five states without taxes Montana, Delaware, Alaska, Oregon & New Hampshire. But once you register the sales tax free state, you still have to pay the sales tax when you register the car in your home state, so don’t use dummy addresses to fool revenue departments. However, if you are moving from a sales free tax state to one with sales tax then you have to register it three months before you move.
Cars built before the 1970s are usually spared from sales tax and even some farming vehicles. Sales taxes are very tricky when you buy a car out of state. Usually you pay the dealer the sales tax and the dealer moves it forward to revenue to your home state, but exceptions abound. We suggest you to consult the local DMV before making a purchase across state lines.