States differ on tax and vehicle purchase values. Some recognize a vehicle's actual sales price, while others determine their own values. If you are purchasing a new car, you may receive a tax discount if you have a vehicle to trade, or you may have to pay tax on the car's sticker price, despite any rebates. To determine your state's tax rules, you must contact your state motor vehicle department or a dealership.
Actual Used-Car Purchase Price
Some states recognize a vehicle's actual sales price for tax purposes. If you live in one of these states, you likely have to prove your sales price. Some states offer a section on the vehicle's title to document the vehicle's selling price. Other states require a bill of sale, which requires signatures of the buyer and seller. A bill of sale lists all details of the sales transaction, such as the sales date and sales price. Other states may require notarized signatures for proof of selling price.
Unfortunately, some states do not recognize a buyer's actual vehicle purchase price when applying sales tax. Even if you paid thousands less than retail or received a vehicle as a gift, you may still have to pay tax based on your state's determined value of the vehicle. State document requirements may differ; you might still have to state your sales price, but your state will use the greater price of the two values for tax charges: either the actual sales price or the state-determined market value.
Many states do not recognize manufacturer rebates, or automatic price discounts offered from the manufacturer, when determining a car's sales price. For example, if you purchase a vehicle with a sticker price of $25,000 and receive a rebate of $2,000, you will still pay tax on the sticker price. However, your state may recognize a lesser price if you negotiate a discount with your dealer. For example, if you negotiate $1,000 off of the same vehicle's sticker price, you'll pay tax on $24,000. The rebate of $2,000 is recognized as a down payment instead.
Dealer Trade Exception
If you have a vehicle to trade toward your purchase, you may receive a tax discount. Many states allow buyers to deduct a vehicle's trade value from the new car's taxable selling price before calculating tax charges. For example, if you have a trade-in that's worth $8,000 and purchase a vehicle for $20,000, you'll pay taxes on $12,000. Trading a vehicle rather than selling it privately may prove worthwhile for this reason. In an area with an 8 percent tax rate, you'll save $960 in tax charges if your trade-in is worth $12,000.
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