How to Calculate Sales Tax

Surprising to many people, vehicle sales tax is calculated a variety of ways and each state sets its own standard for calculation. Before finalizing the purchase of your next car, read through how to calculate new car sales tax and used car sales tax. If you are already speaking with a finance manager at an auto dealership, this is a good time to begin a list of the questions you will have about the auto sales tax.

Vehicle Sales Tax Based on Residence

The auto sales tax charged when you purchase a vehicle is typically a county tax. Most states base the car sales tax on the county where you reside. If you are purchasing outside of your county or state, we recommend that you confirm the tax basis prior to signing the purchase documents. You can confirm this information by contacting the dealership's Finance Manager or your county tax (revenue) office. If the tax is based on your residence, you will need to remind the Finance Manager of this when you are paying or financing the car. This is often overlooked by Finance Managers and can be a hassle to correct after the sale is complete. If the sales tax is in your favor, you could save a couple hundred dollars on this step alone.


Example: Orange County California has a sales tax of 7.75% and Los Angeles County has a sales tax of 8.25%. An Orange County resident will pay the 7.75% sales tax even when they purchase a car in Los Angeles County. For a $25,000 car, you would save $125 on new car sales tax alone. Read more New Car Buying Tips and Used Car Buying Checklist

How to Calculate Sales Tax


The sales tax on your new car can be calculated a few different ways. Here are three ways that sales tax can be calculated:


* Based on Total Purchase Price

* Based on Purchase Price after trade-in is deducted

* Based on Purchase Price after cash incentive is deducted


Keep in mind that, each of these vehicle sales tax calculations can alter your monthly car payment. For a $25,000 new car, $10,000 trade-in, and a $2,000 cash incentive, the vehicle sales tax could be anywhere from $1,200 to $2,000 (based on 8% vehicle sales tax) depending on the tax basis.

Tax Deductions

If you itemize your taxes, the new car sales tax that you pay on a new vehicle may be considered a tax deduction. Visit www.irs.gov for more information about tax deductions. To learn how to calculate sales tax in your state, please contact your local DMV Links or your local county tax (revenue) office.


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