If you’re buying a vehicle and there’s a state sales tax of x%, is that calculated on the price of the vehicle? or on the price minus the trade in allowance?
Could well vary from state to state. I do know that here in CT they tax you on the full amount before the rebate. That makes rebates stupid relative to price reductions in my opinion.
In MD, you’re taxed on the net price. I guess they figure they’ll get the rest when the trade-in is sold.
Good to know. Shoulda thought it’d depend on the state (of course). By happy coincidence, I live in Merrylande as well. North, tho.
Thank you!
Hmmm…that surprises me that it would be on net cost in any state. You are buying a car for price X, and instead of paying for it totally in cash, you are paying for it partially in barter (the trade in). It seems like its just another form of payment so I would expect that sales tax would be on the purchase price, not the net price. I don’t see the logic or benefit to the state to just charge it on the net price.
The reasoning is that Maryland has already collected sales tax on the vehicle being traded in, so to avoid double taxing, the net price of the new car is taxed. Try trading in a car not titled in Maryland and you’ll be taxed on the gross price.
AIUI the Maryland rule is counted as a tax credit on the trade in value, rather than straight reduction of the price.
Virginia, by contrast, taxes on gross price (including dealer processing charge) minus rebates and manufacturers’ incentives, but before trade-ins and unpaid credits.
The sales tax in my state is determined by the cash that changes hands.
A different situation than in the OP, but I did a barter for a vehicle in exchange for labor one time. Since the sales tax on the private sale of a vehicle is collected by the State at the time you apply for a title, we did the bill of sale with the boilerplate “For the sum of one dollar, and other valuable considerations” language instead of an actual sales price. The town clerk collected her six cents tax on that dollar without batting an eye.
One other time, I traded my car straight even with someone for their car, and no cash was exchanged at all. Neither of us paid sales tax on the transaction.
I’ve seen different rules in different provinces in Canada, but the logic is not “you’ve already been taxed”. States and provinces love to re-tax used cars, since it brings in money. Here you pay the tax when you register the vehicle for the first time, or else you present a piece of paper saying the dealer already collected the tax. I presume the dealer lobby got to the politicians and had them make an exception - if you are buying from a licensed dealer, you pay tax on purchase price minus trade-in; if you are buying privately, you pay tax on the full amount… then the guy who buys your old car (privately) pays full amount too. I guess it depends on the state laws for you.
Also, I’ve heard that if the price is too law, the province will charge sales tax on the book value. And you can’t register a purchased vehicle without a safety certification, so “price is low because sold as is” doesn’t cut it. Once you’ve spent the money to certify it, it is now valued at book value. (I believe there are exceptions for transferring ownership to immediate family members).
Minnesota is on the net price. Which I used to my benefit when buying a new car.
CarMax was going to give me $18,000 for my old vehicle which I could have in turn used at the dealer towards the new cars full price. However I would have paid sales tax on the full value of the new car.
Instead I took the CarMax offer the dealer to see if they’d match it as a trade-in. They agreed. That amount was taken off the purchase price. Saved me around $1,200 in sales tax.
Dealer is now telling me MD taxes on gross, not net. He’s verifying this…
It varies all over the place depending the state you are in. In our state, you get credit for sales tax paid on the trade-in vehicle - if it was paid to Vermont. If you move into state, bringing a vehicle with you, and trade it for a new car, you do not get the credit, as no tax was paid to Vermont.
This says:
“Six of the 50 states do not have a trade-in sales tax credit policy. Those states are California, Hawaii, Maryland, Kentucky, Michigan and Virginia. The District of Colombia does not have a net sales tax policy, either. In these states there is no sales tax savings with a trade-in, and you pay the full tax amount on the cost of a new vehicle. Sales tax is not an issue in New Hampshire, Montana and Oregon, since these states do not have a sales tax.”
I think this is usually true because for one thing carve outs to a sale tax tend to be popular: people tend not to consider that the sales tax rate could be lower to raise a given revenue if it didn’t have as many carve outs. And, new car dealers seem in most places to have disproportionate political pull at state/local level compared to the size of their industry. They like this carve out because it allows them to be a little less competitive pre-tax in their trade-in bids compared to stand alone used car dealers or private sellers but still be competitive after tax. Why do many states put up barriers to selling new cars other than through dealers? It’s not necessarily because it’s really obviously best for consumers.
Avoiding double taxation isn’t really the explanation. If that were true a private buyer of my used car shouldn’t have to pay sales tax on that car because I already did when I bought it new. But they certainly do. And here in NJ there isn’t even an exemption from sales tax on private sales to family members, which a lot of other states have. But new car dealers only have to collect sales tax on the net after trade in.