How Do You Calculate Sales Tax on a Car

Well, well! You have finally found the car of your dreams, and you can’t wait till you put the pedal to the metal. However, when it comes to the contract, you would get surprised about a total sum which is higher from an agreed price, or the price you were hoping to get. The main problem is that the contract includes the fees that you were not aware of. In this Prestige Auditors article, we are going to present to you with the most common fees that you can come across by buying a new car.

In most cases, car dealers take care of the vehicle registration fees; it helps you avoid wasting your time in the motor vehicle register office. Keep in mind that when buying a car, you have to figure out all the nuances concerning the price you have to pay for it.

What Fees Will You See?

Generally, there are three main types of fees attached to purchasing a car, namely vehicle registration fees, sales tax, and documentation fees. But let’s try to cover each of them separately.

Vehicle Registration Fee: When a new vehicle needs to be registered in a state, it also requires to have a title assigned to it, and the costs of the license to be covered. A vehicle registration fee is the fee that is charged for all of this. Car dealers are nice and will take this responsibility off your shoulders by handling this process.

Sales Tax: Just like when a zebra is least expecting a lion to jump out, sales tax for new vehicles can jump out on sellers when they least expect it. Keep in mind that taxes on vehicles can vary depending on the states or counties the car is being purchased in. In either case, don’t be too shocked to see sales tax applied to the final price of your new vehicle!

Documentation Fee: Yep, paperwork has fees! The car dealers will take care of the paperwork filing process, but they will require a documentation fee for doing it. We don’t blame them! Paperwork is boring, and they’re doing you a favor…usually! As a rule, dealerships charge a documentation fee from car buyers in order to cover the cost of filling all the necessary documentation. Keep in mind that sometimes dealerships can sell you a low-priced vehicle, but slap high document fees to the contract. Make sure you research the dealers you’ll be purchasing from. People talk, and sometimes it’s a good idea to listen!

Additional Car Buying Fees

You didn’t think we were done with the fees now, did you? If you did, well, bad news! There’s additional fees which might get slapped to your purchase: Dealer Fees and Advertising Fees.  

Dealer Fees: If you take a look at some dealer contracts, you’ll see fancy names like “S&H” (which stands for shipping and handling) or Dealer Prep. These are basically fees that dealers slip into the contract. They are negotiable and you need to consider them to see whether paying them is a good idea for your purchase. Obviously, you need to do this before signing contracts! 

Advertising Fees: What is that you spy with your careful eye? Differences in invoice prices? Survey says, it must be an advertising fee! If it’s there, it’s probably from the company that manufactured the car and sent it to the dealer. Unfortunately, you need to pay up. But, there’s always a but. You’ll see some dealers slap on extra ad fees, which you should definitely try to avoid by talking to the dealer. Make sure they don’t rip you off!

Cars and Sales Tax

Cars are technically tangible goods. Which means sales tax definitely applies to them, as to any other product or service. Depending on which state you purchase a vehicle in, specific cars or vehicles may be exempt from sales tax. For example, in New York, agricultural vehicles are often tax exempt, depending on certain criteria. Hybrid cars might be tax exempt in Connecticut. There are different rules per state.

Before buying your dream car, we at Prestige Auditors recommend consulting with professionals to both avoid potential problems, and get more knowledge on sensitive topics such as sales tax exemption. We are here to provide a ton of resources for you and your business, so don’t hesitate! Give us a call with any business-related inquiries you might have!