Paying Sales Tax on a Used Car Bought out of State

You cannot get out of paying sales tax on your new car by buying it in another state. What you really want to avoid is paying sales tax in two different states. Each state has its own rules concerning the collection of tax on used cars bought out of state.

Check Your State Tax Rules

The rules that most effect the sales tax you pay are those from your home state, where you will register the used car. Your home state might require you to pay the full state sales tax amount for a car you bought out-of-state, or you might get a credit for any sales tax paid when the car was purchased in another state. Your state might also have reciprocal tax agreements with some states and not with others. Check with the Department of Motor Vehicles before you commit to buying an out-of-state car.

Buying Private Out of State

If you buy your used car from a private party in another state, your home state will collect sales tax when you go to register the car. You should have the out-of-state title and a bill of sale from the seller to present at your local DMV. You need to have enough money available to pay the sales tax plus registration fees. The DMV might require a vehicle identification number (VIN) inspection to verify the car matches the out-of-state title.

Out of State Dealer

If you buy from a car dealer in another state, the dealer will follow the sales tax collection rules of his state. Some states allow the dealer to not collect sales tax if you provide proof -- such as an out-of-state driver's license -- that the car will not be registered in that state. If the dealer is required to collect sales tax, you need to take the documentation showing tax was paid to your home state DMV when you register the car. If your home state tax rate is higher than the one where you bought the car, your state might collect additional tax to bring your rate up to its level.

Other Considerations

Your state might have specific rules for registering out-of-state cars, such as rules governing local smog guidelines and safety inspections. While these items might not be required in the other state, the car may might pass inspection in your state. For example, California does not allow you to register a low mileage used cars that does not show a California emissions certification under the hood.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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