Buying a new or used car is expensive enough, not including the many extra taxes and fees to get it properly registered and titled under your name. However, one of those additional costs that most folks don’t properly understand is the sales tax, a consumption tax imposed by state and local governments on the sale of goods and services. This also includes vehicles, where it’s charged when you buy a car. However, do you pay sales tax at the dealership or the DMV?

This is a pretty common part where many new car owners are confused, and I’ve also heard a few folks who’ve been scammed by this. Otherwise, I’ve also heard of folks who had not even paid the sales tax, as they weren’t really sure about who to pay it to. So, let’s make this really clear – not paying the sales tax when buying a car (either used or new) will result in a world of hurt. This includes getting caught in legal problems, fines, or other unpleasant penalties.

Plus, the sales tax applies to any car purchase, whether or not you bought it from a dealer or through a private seller. Either two will also impact how you pay the sales tax. Some dealers would collect the sales tax at the point of sale, and then forward them to the appropriate state revenue department or DMV. However, with private sales or dealers that couldn’t deal with the sales tax, you (the buyer) will have to pay the sales tax directly to the DMV.

1) Who Collects The Sales Tax – Dealership Or DMV?

In short, there are two situations that determine who you pay sales tax to, either the DMV or the dealership:

  • Paid at the dealership – Again, as I noted earlier, some car dealerships are authorized to collect the sales tax directly during the point of purchase. They’re then able to calculate how much the sales tax will cost you – based on the vehicle’s purchase price or fair market value – and then be able to apply the local or state tax rates. The collected sales tax is then forwarded by the dealer to the relevant state revenue department or to the DMV (depending on the state).
  • Paid at the DMV – While the latter option simplifies the process for you (the buyer), if you had bought a used or new car through a private sale, or in situations where the dealership doesn’t collect sale taxes, you’re responsible for paying that sales tax directly to the DMV. To ensure a car is taxed fairly, the DMV would calculate the sales tax either based on the car’s fair market value, or the purchase price. Normally, you’d pay this during the title transfer and registration process.

In summary, who pays or collects the sales tax depends on state laws and whether you bought the car from a dealership or a private party. Just to be absolutely sure, I’d recommend checking with your local DMV office or giving them a call to make sure. They’d be able to better clarify if you have to pay the sales tax directly to the DMV, or whether the dealership will handle this for you.

2) Buying A Car From A Dealership

Most car dealerships handle every aspect of the sales tax calculation and then make it clear to you before you pull the trigger on buying that car. These calculations are typically based on the car’s purchase price, trade-in value, and any other applicable fees. Most of the time, you’ll find the sales tax included with the final purchase price, consolidating all those extra costs and fees into a single transaction.

It’s worth noting too that some car dealerships offer the option to finance the sales tax as part of a loan if you’re financing the car purchase. Be cautious, because while this might lower your upfront costs and make the car cheaper to lease, it otherwise increases your overall loan costs due to interest. Remember that the sales tax is a percentage of the vehicle’s purchase price, so it also takes into account if you finance it.

If and when you’re buying a car from a dealership that could handle the sales tax for you, just make sure that you get a detailed invoice that itemizes every fee and extra cost. This way, you can transparently and clearly see how much the sales tax is. Ultimately, having the car dealer handle the sales tax for you is a huge convenience, letting them instead be responsible for forwarding the tax back to the state.

3) Buying A Car From A Private Seller

On the other hand, when you’re buying a car from a private seller (or in some instances, there are a few dealers that won’t handle the sales tax for you), you’ll be responsible for calculating and paying the sales tax to the DMV, when you’re registering the car. Only after the sales tax gets paid will you be able to have the car legally registered to your name. In most states, this sales tax will be paid alongside the title transfer and vehicle registration process.

The DMV calculates the sales tax based on the bill of sale (which states how much you paid for the car; i.e. the purchase price), or based on the vehicle’s fair market value. The DMV will pick whichever is higher, which might suck for you (the buyer), but it ensures that the state gets its fair portion of the taxes. With that in mind, you’ll have to bring the bill of sale, a valid ID, and proof of insurance, when you’re visiting the DMV to register it and pay the sales tax.

Interestingly, the sales tax rates for private sales might be different from dealership sales due to local taxes or fees that aren’t included in private transactions. I should stress that you have to make sure all the documentation is in good order and accurate, primarily where it mentions the purchase price of the car. This is crucial for the DMV to determine the appropriate amount of sales tax owed by you and make sure you’re not paying any more or less.

4) How Sales Taxes Vary From State To State

The sales tax when purchasing a car that you have to pay also varies depending on which state you’re in. Some states don’t have a sales tax (so, 0% sales tax), while states with higher taxes are set to 10% or higher. Elsewhere, some states might have a flat sales tax rate, while others have a sales tax that varies based on the car’s age, type, weight, or condition. When you’re trying to calculate sales tax, there are other things you need to consider, too:

  • Additional local taxes and fees – Some local counties or municipalities might impose additional fees and taxes. These include (but aren’t limited to) county taxes, municipal taxes, and special district taxes, which will add to the total amount owned by you.
  • State exemptions or reductions – A few states out there may have exceptions or tax reductions for specific buyers. These normally benefit veterans, seniors, or folks who buy vehicles used for business or agriculture. Certain states might also have tax holidays or reduced rates at specific times of the year, so keep an eye out for that to save some extra cash.
  • Verification and compliance – Before you do anything, it’s a good idea to check with your local DMV and state revenue department to get up-to-date information on sales tax rates and what requirements your state might have. Remember that non-compliance will result in you getting fined, incurred penalties, or other problems during the registration process.

5) What Documents Do You Need To Bring

When you’re heading down to the DMV to pay your sales tax in person, there are a handful of documents and paperwork that you need to prep beforehand. The specifics will vary from one state to another, so do check in with your state’s DMV to know what you have to bring. With that said, here are some to keep in mind:

  • Bill of sale
  • Certificate of title
  • Proof of insurance
  • Valid government ID
  • Odometer disclosure statement
  • Lien release document
  • Emission inspection certificate
  • Safety inspection certificate
  • Proof of (state) residency