### If You Buy a Car Out of State, Do You Pay Taxes Twice?

Buying a car is an exciting experience for many people, but some find the process overwhelmingly stressful. Keeping track of all the paperwork requirements and making sure to make all required upfront payments can be a real task. One of the most important parts of the process is paying sales taxes, but that amount can vary wildly between states. Some don’t charge any sales tax, while others charge heft state sales tax rates that make shopping out of state tempting. 

Buying a vehicle out of state can be a great way to save money on your next purchase. Opening your search radius well beyond your home area not only gives you more choices of color, options, and trim levels, but it can also open the door to better deals in areas where there are more models available and demand is lower. 

That said, it’s not possible to chase lower tax rates by shopping in a state that charges a lower percentage. Buyers always pay sales tax in their home state where the vehicle will be registered. Vehicle sales, whether they are from a dealership or private party, can happen anywhere, but the final sales tax is paid where the vehicle lives. While that can be a bummer for people looking to save a few bucks on tax, the good news is that you won’t have to pay taxes twice.  

### Understanding Sales Tax

Sales taxes on car purchases are calculated at the same rate as any other product. That means that in states like Maine, where consumers pay a 5.5 percent sales tax on things like shoes and home goods, new car and used car purchases are taxed at the same rate. If a buyer travels to neighboring New Hampshire, which has no sales tax, to buy a car, they will still pay Maine’s 5.5 percent rate when registering the vehicle at the DMV. 

Despite that, the buyer only pays taxes in the state where the car is registered. The state uses the bill of sale or dealership documentation to determine the sales price and then calculates taxes on that amount. It’s important to point out that you might face other charges when registering, such as emissions taxes, local excise taxes, road use tax, or other fees. These taxes and fees are calculated when registering and can vary wildly between states and even between towns in a state.

Depending on the state, the buyer may be eligible for a tax exemption on their vehicle purchase. Different states offer exemptions for disabled veterans, historic vehicles, electric vehicles, and more. States like California and New York have extensive credits and incentives for green cars, which may completely wipe out any state tax owed at the time of purchase. 

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### Navigating State Regulations

Even though you won’t pay tax in the state of purchase, there are several other things to consider when buying out of state. You’ll need to provide proper documentation, including proof of car insurance, proof of the purchase price, and other paperwork required by the Department of Motor Vehicles (DMV). Your local DMV will need the bill of sale to determine the price that was paid, and you may need other documents to register the car and get a license plate. You may also need to provide some of the sales paperwork to your lender if you’re using a loan to purchase the vehicle.

Beyond calculating local sales taxes, all of that paperwork helps ensure a complete and legal title transfer. Your state’s DMV will complete the documentation to generate a new title and satisfy other requirements. Some states’ Department of Revenue and other regulatory bodies don’t allow vehicles to be driven until the sales tax has been paid; however, you might need to arrange transport if that is the case. 

Depending on the state, you might also need a vehicle inspection or vehicle history report and proof of coverage from your insurance company prior to being able to register the car. If you’re buying at an out-of-state dealer and want to drive the car home instead of shipping or taking delivery, you’ll need to obtain a temporary registration, which might be required during the permanent registration process. 

### Avoiding Double Taxation

It’s relatively easy to avoid paying double taxes when buying a car. If you’re buying from a dealer, they can charge your state’s sales tax and document the payment for you to show when registering the vehicle. Private-party sales are a bit different, as you’ll need a detailed bill of sale to prove the purchase price and any other payments. The dealer must detail all payments made, and it’s important that you thoroughly read through all paperwork to ensure that you only pay taxes once. That said, not all dealers offer that service, so it’s important to confirm what is and isn’t being charged at the time of sale. 

### Additional Considerations

Buying a car out of state is an attractive prospect, as it’s often easier to find a good price or the exact model you desire in more populous areas. Beyond taxes, there are several other expenses you should consider when buying out of state. 

### Transportation and Shipping Costs

Buying a car remotely is one thing, but getting it home is another process. Many people choose to fly or drive to the dealership or private party to buy, opting to drive the car home instead of shipping or having the dealer deliver. You’ll need to think about a temporary registration to do this, and you’ll likely have to provide some documentation to your insurance company to ensure that you’re covered if you get in an accident on the way home. 

If the vehicle is located hours away, consider that you may need a hotel room or other accommodations to split the drive over two days. It’s also good to plan for fuel or charging expenses and to account for any time lost at work. Tolls and other fees may apply.

Some people choose to ship a car, and some dealerships can help facilitate the process. Shipping can be quite expensive, especially over long distances, but there are ways to save money. Opt for an open trailer, which is generally the cheapest way to transport a car by ground, but the downside here is that the vehicle is open to the elements during transport. An enclosed trailer is more appropriate for higher-value cars, but the costs can be up to 100 percent more than if you’d chosen an open trailer. 

### Warranties and Manufacturer Guarantees

In most cases, a vehicle purchased inside the United States will be covered by the manufacturer’s warranty until the time or mileage limit has been passed. That said, warranties assume that the vehicle has been maintained by the automaker’s guidance, so it’s vital to make sure everything is in order before buying. Buying a car out of the country is a different situation that could complicate or void the warranty altogether. 

### Tax Implications

While paying sales tax on a new vehicle purchase doesn’t have much to do with your year-end tax return, you may have other things to consider when filing taxes. Electric vehicle tax credits changed in early 2024, but if you purchased one before then, you might be eligible for a year-end tax credit. You’ll also have other deductions to consider if you bought the vehicle as a business expense or for commercial purposes.

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### Get a Pre-Purchase Inspection

This piece of advice applies regardless of where you buy a vehicle, but it mainly applies to used cars and vehicles purchased from private sellers, and it generally does not apply to new vehicles sitting on a dealer’s showroom floor. Have the vehicle inspected by a reputable third-party shop. Spending a little money to have the vehicle checked out can save thousands in unexpected repairs down the road, and it will help give you a good idea of how well the vehicle has been maintained by the previous owner.

It’s also a good idea to get a vehicle history report. Using the vehicle identification number (VIN), head to Carfax or one of the other history report vendors. The documents require a small fee, but they show accident history and can give you a decent idea of major maintenance or repair work performed, which can make your out-of-state purchase much less stressful.

### Vehicle Registration and Other Charges

Sales tax is just the beginning of the expenses when it comes to buying a car outside your state of residence. Depending on the location, you might face local excise taxes, additional registration fees, title transfer fees, and other expenses. License plates also cost money, and some states require an inspection to certify that the vehicle meets local regulations for emissions and safety before it can be registered.

Buying a car out of state has plenty of upside, but there are also several challenges involved in the process. Don’t expect to get a break on your sales taxes buying out of state, and don’t assume that a dealership will handle all of the paperwork before you leave the store. Take the same precautions you would when buying a vehicle from anywhere else, making sure to verify the vehicle’s ownership and repair histories. Finally, do your research. Getting the best deal often requires extensive searching, and negotiating the right price is often difficult. If you’re considering an out-of-state purchase, take your time and gather all the proper documentation to ensure a seamless process when you head to the DMV to register your new ride.

If I buy a car in another state, where do I pay sales tax? We find the answer! Most states levy a sales tax when you purchase a car, however, each state is different.

If I Buy a Car in Another State Where Do I Pay Sales Tax?

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