• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Avoiding taxes typically isn't possible

For most people, the only way to avoid paying sales taxes on a car purchase is to buy a car in a state without a sales tax. These states include:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

However, while these states may not charge sales tax, some do charge other taxes when buying, registering, or operating a vehicle. For example, in Oregon, vehicle dealers must pay a Corporate Activity Tax (CAT) and Vehicle Privilege Tax. Dealers may pass these costs onto consumers.

The bottom line is, the government wants to collect revenue, and charging customers who buy cars is generally a good way to do it.

Invest in real estate without the headache of being a landlord

Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.

The best part? You don’t have to be a millionaire and can start investing in minutes.

Learn More

Exemptions and exceptions

Of course, there are exceptions to every rule. While the details vary by state, you can sometimes avoid taxes on a vehicle purchase in the following situations:

  • If the vehicle is very old
  • If the vehicle is used for agricultural purposes
  • If you are disabled and qualify for a sales tax exemption
  • If the vehicle has a very low value

Check with your state's DMV or Department of Revenue to find out what exemptions you qualify for. Be sure you legitimately meet the requirements though, as you don't want to commit tax evasion (or, if you do, at least don't document it on social media, as DiLucci warned against).

You may be able to reduce sales tax with this technique

There is some good news for those who want to take home a new set of wheels without a big tax bill. While you can't eliminate sales tax if your state charges it, you can sometimes reduce it.

That's because most states allow you to subtract the value of your trade-in vehicle from the sales price of your new vehicle before taxes are calculated.

So if you're buying a car worth $30,000 and your trade-in is worth $20,000, you'd be charged taxes only on the $10,000 difference between your new vehicle and your old one.

Depending on where you live, there may be caps on the amount you can deduct. Still, this rule often means that you benefit from trading in your old car with the dealer you buy your new one from.

Ultimately, though, you do need to be prepared for the Department of Revenue to come calling when you buy a car. So, be sure you factor sales tax into your budget when deciding what you can afford.

Sponsored

The richest 1% use an advisor. Do you?

Wealthy people know that having money is not the same as being good with money. Advisor.com can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning. Try Advisor.com now.

Christy Bieber Freelance Writer

Christy Bieber a freelance contributor to Moneywise, who has been writing professionally since 2008. She writes about everything related to money management and has been published by NY Post, Fox Business, USA Today, Forbes Advisor, Credible, Credit Karma, and more. She has a JD from UCLA School of Law and a BA in English Media and Communications from the University of Rochester.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.

†Terms and Conditions apply.