If You Want to Avoid Paying Sales Tax on a Used Car, Here’s How to Do It
You may be able to avoid paying sales tax on a used car if you buy it in a state that doesn't impose sales tax. There are also a few other ways.
Jan. 17 2023, Updated 11:27 a.m. ET
Buying a used car is a great way to save money if you need a vehicle but don’t want to dish out the extra dollars for a new ride. One of the downsides, however, is having to pay sales tax on it. But we have some good news.
If you’re in the market for a used car and you don’t want to pay sales tax on it, you may not have to. There are actually a few ways you get around having to pay sales tax on a used car, and we’re divulging them for you down below.
Here’s how much you’ll pay in sales tax on a used car.
Before we jump into how you can avoid paying sales tax on a used ride, it’s important to understand how much sales tax will actually cost you. This can help you in the long run as you budget for your “new” vehicle and if you aren't able to get the sales tax waived.
Because sales tax varies by state and county, some people will pay more than others. For example, if you were to buy a $15,000 used vehicle in Shelby County, Tenn., you’d pay $1,387.50 in sales tax alone. In this region of Tennessee, consumers are required to pay a county-wide sales tax of 2.25 percent in addition to the state’s 7 percent sales tax.
You can find out what your state and county sales tax rates are by doing a quick search online.
Here are three ways you can avoid paying sales tax when buying a used car.
While most people will need to pay sales tax on the used cars they purchase, some can avoid it. For example, if the vehicle you’re buying is going to be used for church-related activities or will serve as a farm vehicle, you might be exempt from paying sales tax.
In Texas, a farm machine or trailer is exempt from sales tax if it's used for farming at least 80 percent of the time. Another way you can avoid paying sales tax on a used car or truck is by purchasing it in a state that doesn’t impose this type of tax.
The five states that currently don’t impose a state sales tax include:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
Although these states don’t subject consumers to state-wide sales taxes, some allow cities to charge their own sales taxes.
You may be entitled to a tax rebate when you buy a used electric vehicle.
If you purchase a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less after Jan. 1, 2023, you may be entitled to a tax credit. While you’ll still have to pay the sales tax up front, the credit entitles you to receive 30 percent of the sale price via a tax credit, up to a maximum of $4,000, according to the IRS.
The IRS website outlines the types of vehicles that qualify for this credit and the criteria that must be met.