How Much Tax Do You Pay On A New Car?

You skillfully reach a deal on the price of a new car, and you think you are getting a darn great deal. But upon seeing the contract, the totals are higher than what you had planned on paying. Then, there comes the problem: There’re taxes in the contract that you did not know you were going to pay. This leaves you with the question: How much tax do you pay on a new car?

Car Tax

To answer that question, go through this article to check on all the car-buying taxes and fees you will most likely encounter. Aside from that, you are also going to see how different states in the US charge sales tax on rebates and trade-ins.

Most commonly, there exist three categories of taxes when buying a new car: documentation fee, vehicle registration fees and a sales tax. Dealers have a very strong incentive to collect taxes in a correct way. And, having in mind that there are exits so many dollars flowing into the dealership market, most of them often get audited.

Here is a list of the main categories of taxes that are charged by dealers.

Vehicle Registration Taxes

This refers to the amount of money charged by the state for a new car to be registered, or to be assigned a title/legal proof of ownership. The cost of license plates is also covered in the vehicle registration tax. The dealer avails this service for you, thereby saving you a trip to the registry or DMV. The classier the vehicle is, the higher the registry taxes.

Sales Tax

Sales tax on new cars amount to more than most buyers expect. For instance, at 9%, sales tax on a $30,000 car will cost you $1,900. Counties and cities regularly include a quarter of a percent point, thus, the total tax you pay may vary from state-to-state.

Documentation Tax

Dealerships charge buyers of new cars a documentation tax, or “doc fee,” that covers the cost of filing and preparing the sales contract as well as other paperwork. Some states have laws that
limited the documentation tax. In states where the documentation tax is unregulated, dealerships can even sell cars at attractive prices but then include a high doc tax on the contract.

If your state doesn’t limit doc tax, carry out an early research on the buying process to find out what is charged as a tax by the dealership. If the documentation tax is considerably higher than the average put up by your state, negotiate the price of the car more aggressively to offset this tax. With this in mind, you will have answered the question: How much tax do you pay on a new car?