Do You Pay Sales Tax on a Car Down Payment?
Whether you are buying a new or used vehicle, sales tax will affect your total payment and must be paid before you can register your car. Sales tax is calculated before your down payment, working off the total price of the vehicle itself plus any add-on features or dealership services. While you do not pay sales tax on a car down payment, it’s important to understand how these fees will impact your budget.
Is Sales Tax Calculated Before or After Down Payment?
Are car down payments taxed? The answer is no: for most states, car sales tax is calculated before a down payment and is based off the total selling price of the vehicle. This total includes additional dealer-installed equipment or features such as remote start, window tinting, or any other vehicle upgrade package. Dealer documentation fees are rolled into this taxable amount as well.
For example, if you buy a car with an MSRP of $20,000 but decide to add on $500 rims, your total taxable amount will be $20,500. Your down payment will go towards this total but does not have an effect over the amount of taxes you’ll pay.
Other Sales Tax Considerations
While you do not pay sales tax on down payments, there are factors that impact how much sales tax you’ll pay. If you trade in your current vehicle to put towards your new vehicle, that trade-in value will bring down the total price of your purchase, bringing down the taxable amount.
For example, if your new car costs $20,000 but your trade-in is worth $10,000, you’ll only be taxed on the difference of $10,000. It’s important to note that sales tax rules vary from state to state, as some only allow this benefit on new cars and not used. Be sure to check with your local DMV or discuss the regulations with a knowledgeable auto financing expert.
Dealer documentation fees are included in sales tax, but sometimes can be waived through negotiation. Talk to your salesperson to see if this is possible. Luckily, license and registration fees are not included in your car tax total.
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