So, you're on your way to buying your first, or next, vehicle. You have already got your money prepared and looked on many websites to make sure if the price is right. You have set up an appointment with your car dealer or a private seller. You're only a few days away to drive it back home. But suddenly, you noticed there are these thousands of dollars added in the original price. Right then and there, you must have guessed it's the tax you have to pay aside from the price and other fees.
In the US, or in most countries for that matter, everything you do or pay has to be taxed. But you certainly don't want to be shocked by it. So, in this post, we are going to teach you how to figure your car tax out, so you won't have to roll your eyes from shock with the price.
When it comes to buying a car, whether old or new, the one thing you should consider first is the state sales tax. Most states in the country have sales tax and can vary from 3 to 8 percent. You can check with your local state on how much should you pay for your sales tax, or if you don't have to pay any at all (lucky you).
You might encounter the term use tax. To clear out the confusion, use tax is different from sales tax. Sales tax refers to the tax when a sale, transfer, or exchange was done, and it can either be an item or a rendered service. In short, when you purchase a product, and a tax is added in the price, that is a sales tax. Use tax, on the other hand, is the tax added on the use or consumption of a service or item on which no sales tax has been paid. And since a car, whether used or new, is a product you buy, the tax added is a sales tax and not a use tax.
And when you think that once you add your sales tax, you're still not hearing the end of it. Apart from the state, there's also the local sales tax to examine. Local sales tax varies in counties, cities, and school districts, so make sure to check out your local sales tax. If you're going to add both state and local sales tax rates, the total percentage can increase up to more than 10%.
Another essential pointer to learn about is that when it comes to collecting sales tax, you can only get it from buyers coming from states where you have nexus. So what is sales tax nexus? It may sound like a galaxy far far away, or it sounds like a luxury car, but it's now from that. According to Avalara, sales tax nexus is defined as "the connection between a seller and a state where the transaction was made." So, for example, if you bought the car in a used car dealership in Utah, then Utah has the nexus and therefore pay your tax there. This is important to know, especially if you're buying a vehicle from out of state.
Short answer: yes. But that's only if you itemize your deductions. Also, you can only deduct a sales tax from purchasing a car in your state and local sales tax and not from your state and local income tax. The only time you can deduct sales tax is when you've paid more in the state and local sales tax than in your state and local income tax.
For you to claim a deduction, it's pivotal to keep your receipts so you can deduct the actual sales tax paid that year. You can also use the IRS sales tax tables so you can determine your own deduction. Remember that there is only a limit of $10,000 on how much you can claim. If this is a bit too overwhelming, you can always ask the expertise of an accountant or an IRS agent near you.
And that's pretty much the primary yet necessary information you should know about vehicle sales tax. With this info, you now have the primary knowledge of how taxation works when purchasing your car. If car tax screams too much information on you, you can always go to a reliable used car dealership and have an expert and friendly dealer explain everything that you need to know.
