How do you get around paying sales tax on a car?

If you live in a state that doesn't charge sales tax, but you plan to move to one that does, consider buying your car before moving to another state. If you are moving to Utah or want to buy a vehicle in the state, you should be aware of Utah's car sales tax. Understanding Utah's car sales tax allows you to calculate the total cost of your vehicle once the dealer presents you with a sales contract. You'll want to be well informed, so you can make the right decision when buying a new car in this state.

There are some cases where you can legally avoid paying sales tax on a car. Keep in mind that not paying sales tax when the situation allows it is tax evasion, which is punishable by law. To calculate the amount of tax you'll pay, simply convert the percentage of the tax rate to a decimal and multiply it by the purchase price. While buying a car in another state may help you save on the cost of the car, it won't stop you from paying sales taxes.

If you buy any product or service in Utah, you are subject to the state's general sales tax rate, which is 4.85 percent. If you lease a vehicle, you must pay state sales tax on your down payment and on your monthly payment, says Southtowne Auto Mall. If you receive incentives or rebates for buying a car, the state ends up taxing the vehicle after the dealer applies the rebate. So, to take advantage of a state that doesn't charge taxes on car sales, you'll have to live there.

You might think that you can avoid sales tax by simply buying a car in a state that doesn't charge sales tax, but it doesn't work that way. Most state and local governments add sales tax to the cost of goods and services to help fund things like road maintenance, fire departments, schools and recreational activities. The sales tax on used cars is the state tax rate (7.25%) plus the municipal tax rate (2.25%), for a total of 9.5%. For example, if you buy a car in a state where there are no sales taxes, you'll still have to pay the sales tax from your home state, plus any taxes that the local government may collect.

However, falsifying information or refusing to pay sales tax when due is illegal and is known as tax evasion. Make sure you know how federal and state tax credits and incentives work if you're planning to buy an electric vehicle. If your state of residence doesn't have sales taxes, but you're moving to a state that does, buy your car before you move. Most of the time, the tax credits you can get as incentives to buy electric vehicles will exceed the sales tax you pay.

Glenna Penrod
Glenna Penrod

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