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Tax, Title and License. What You Need to Know to Avoid Surprises

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Tax, Title, and License Fees

The car buying process is usually a long and tedious process as it is a very large decision for any buyer. Through our website, we provide the information and resources to allow any car buyer to get the best possible deal. We specialize in helping buyers with low credit scores or no credit at all. One of the biggest surprises car buyers get when looking to buy is one of the final steps of buying a car. For many, the Tax, Title and License discussion with the salesperson can be discouraging and confusing.

The tax, title and licensing are standard on most any car purchase. It is a part of the process where the buyer can feel like the situation is getting out of control. The purchase price has been negotiated, but there are added costs to tack on.

Taxes Imposed on the Purchase of a Car

Do I have to pay taxes when buying a car?

While most states do impose a sales tax on a car, there are certain states where car sales are not taxed. It is important to note that cars purchased out of state are taxed by the state where the buyer lives or more specifically the state the vehicle will be registered in.

Buyers are liable for taxes on the purchase. The state sales tax is imposed at a different rate from state to state. Buyers can check the sales tax rate for their state online prior to buying a vehicle.

Is the state tax the only tax I will pay?

Of the 45 states that impose taxes on car purchases, the majority of them allow county and local governments to tax the purchase as well. Buyers will have to check local government websites to get the exact rate. If you are purchasing the car from a dealer, the salesperson will be able to tell you the tax rates.

What purchase price is used to calculate the sales tax?

There are a few different figures that will be used to calculate the taxable amount on the purchase of a car. The figure used for the calculation varies from state to state, so make sure to check online or with the salesperson for which number is used in the tax calculation. The three different tax figures are:

  • Basic sale price – If the buyer buys the car outright, the total purchase price is the number used to calculate the tax.
  • Incentives and pricing – In certain states, the tax paid on a car purchase includes the incentive amount. In other words, if you buy a $24,000 car and get $4,000 in incentives you will have to pay tax on the full purchase price before incentives.
  • Trade in pricing – Some states do not tax the difference in purchase price when a trade is involved. If you buy a $20,000 vehicle but trade in an $8,000 vehicle you may pay taxes only on the $12,000 difference.

Responsible buyers will want to check the tax laws for their state and municipality whether they are buying from a private party or from a dealership. Sometimes the purchase price will need to be negotiated down to account for tax liability.

Title fees when buying a car.

What is a vehicle title?

The title of a vehicle indicates legal ownership. The title is an official document issued by the state that can be transferred from one person to another when a purchase or other change of ownership occurs.

When do I need to transfer a title?

The title of a vehicle will have to be transferred any time ownership of a vehicle changes. This includes scenarios such as:

  • Vehicle sale
  • Gifting a vehicle
  • Inheriting a vehicle
  • Paying off a car loan

Any of these situations require the transferring of a title.

How do I transfer a title?

If ownership of a vehicle is changing hands, the current owner and the future owner typically take the title to the DMV together and sign the document in front of a notary making the transfer of the vehicle official. States vary when it comes to documentation requirements like ID’s and related documentation for proof of identity. The title will also have to have the current odometer reading of the vehicle listed on the title transfer. It will also need to be notarized to be legally binding. The fee for transferring a title is set by the state.

When buying a car from a dealership, the title transfer is done in house and the cost of the transfer is added to the purchase price of the vehicle.

How do I transfer a title if I purchase it out of state?

If a buyer purchases a vehicle out of state, they will have to complete a title transfer for that particular state so they can register it to drive. It is not much more complicated than transferring a title in a state, though requirements vary from state to state.

What else is listed on the title?

When getting ready to buy a vehicle from someone, buyers will want to inspect the title thoroughly. The odometer reading should be accurate and the VIN number should match the one on the vehicle. Other information on the title includes special situations.

Titles also must indicate if the vehicle has been previously salvaged or involved in a flood, so buyers should check the title thoroughly for any information of this type. The buyer can also run a history check on the vehicle to make sure the title has not been altered or forged.

What else should I look for on a title?

When buying a car from a private party, make sure the car is legally owned by the person selling it. This is verified at the DMV, but there may be co-owners that are on the title which could stop the sale. Buyers should inspect the title thoroughly to make sure it is accurate as changing a title after the purchase can be a long and complicated process. It is also recommended that the buyer gets a bill of sale as a secondary form of proof of purchase.

Registration of A Newly Purchased Vehicle

When a buyer purchases a vehicle, it must be registered with the state where the owner lives. The registration process is fairly straightforward for most states. The buyer uses the new title to register the car with the DMV to legally drive it. Most registrations are for a one or two-year duration and can be completed online.

The state will require the owner to provide proof that the vehicle is insured before it can be registered.

Getting a License Plate

The initial registration of a new vehicle will also involve getting a license plate issued for the vehicle. The plate will take time to arrive, so the DMV will issue a temporary tag for the vehicle available immediately and good for 90 days. If the buyer is working with a car dealership, this process will also be done in house.

Total costs of Tax, Title, and License

What can the buyer do about these additional costs?

The added expense of Tax, Title and License can affect a car buyer’s budget significantly. The first step towards handling these additional costs is to find out how much they will cost. If the buyer is purchasing from a private party, the calculation will have to be done privately. If the car buyer is working with a dealership, they can simply ask the salesman what the out the door price of the vehicle will be when negotiating the price.

Dealing with Out the Door Prices

Many car dealerships will begin price negotiations by asking the buyer what they want their monthly payment to be. Smart buyers will not be drawn into this discussion as it can distort the purchase price of the vehicle. The best route to take is to ask the dealer what the out the door price of the vehicle will be. This price includes all the costs the dealer will charge to prepare the sale. This includes the tax, title, license and any documentation fees the dealership charges. Once that figure has been disclosed, the buyer can look into financing options that are available to them. The dealer will be able to give the buyer the best financing options available to them through the dealership, but the buyer can also look into other auto loan options like the ones offered through our application.

We do our best to look out for our customers by offering wise advice on auto financing and an open and honest look at all the buyer’s options. Buyers should not be discouraged by bad credit or rejection at an auto dealership. The options for buying a car extend to even those people who have little or no credit.

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