Depending on where you live (see the list below) your trade-in vehicle(s) may be exempt from Sales Taxes. For example, if you are purchasing a $30,000 vehicle and are trading a $10,000 vehicle, you would only pay sales tax on the difference - $20,000.
So remember, if your trade is exempt from sales taxes and you are considering selling your vehicle to another party - e.g. selling it privately or to a different dealership from the one you are planning on buying a vehicle - you will be losing that tax break.
For example, if you were to sell your $10,000 vehicle on the Internet to a private party it would be the same as receiving $9,345.80 as a trade in (if your Sales Tax was 7% for example). The reason being that you would be saving another $654.20 in Sales Tax savings from trading. Put another way, if the dealer offered you $10,000 - it would be the same as you selling your vehicle in the private market for $10,700 (if your Sales Tax was 7% again).
So what happens if your State is one of the 12 States that does not exempt the trade-in from Sales Tax? In that case, whether you trade in your vehicle or not, it has no effect on the Sales Tax you pay. You would pay the full amount of Sales Tax on the vehicle you are purchasing. If you are buying a $30,000 vehicle and your trade is worth $10,000; you would still pay Sales Tax on $30,000. As such, residents of those 12 States end up paying more in total for their vehicles.
|STATE||IS THE TRADE-IN EXEMPT FROM SALES TAX?|
|District of Columbia||NO|