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.
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Learn MoreExemptions 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.
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