States with No Sales Tax on Cars: Ultimate Guide

I remember the first time I walked into a dealership, eyes gleaming at the sight of a shiny new car that seemed to be calling my name. The sticker price was just within my budget, and I could already picture myself cruising down the highway. But then came the paperwork and, with it, the harsh reality of sales tax.

Suddenly, the car was thousands of dollars more expensive, and my excitement turned into frustration. If you've ever experienced this, you're not alone. Sales tax can be a significant roadblock on the path to car ownership, adding unexpected costs that can derail your plans.

Sales tax can significantly affect the overall cost of owning a car. In most states, sales tax rates on vehicle purchases range from 4% to 7%, but some states have combined state and local sales taxes that exceed 10%. [1]

For example, if you're buying a $30,000 car, sales tax alone could add an extra $3,000 in a state with a 10% tax rate.

Most states impose some form of sales tax on car purchases, which directly impacts the total price you pay at the time of purchase.

According to the Tax Policy Center, 45 states and the District of Columbia collect statewide sales taxes, affecting the majority of car buyers nationwide. [2] This can be a substantial financial burden, especially if you're unprepared for it.

However, what if there was a way to avoid this extra cost altogether? A handful of states offer a unique opportunity for car buyers to sidestep sales tax, allowing you to save thousands of dollars on your vehicle purchase.

States like Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax on cars, [3] meaning that the price you see is much closer to the price you pay. By strategically planning your purchase and knowing where to look, you can maximize your investment and significantly reduce your expenses.

Choosing to purchase a used car can be an incredibly cost-effective decision, especially in states with no sales tax on vehicles. In 2020, used cars accounted for nearly 70% of all vehicle sales in the United States, highlighting their popularity among cost-conscious consumers. [4]

States like Oregon and Montana make it easier for consumers to find quality used cars without the additional cost burden of sales tax, enhancing both affordability and broader access to the automotive market.

One unique aspect of purchasing a vehicle in these tax-free states is the ability to focus more on the value and features of the car itself rather than the added costs. Without the burden of sales tax, you can allocate your funds towards obtaining a more feature-rich or higher-quality vehicle, enhancing your overall driving experience.

This flexibility is especially beneficial when dealing with used cars, as it allows for a broader selection within your budget. Additionally, you might consider investing in extended warranties or additional insurance coverage, given the financial room created by the absence of sales tax on your purchase costs.

Understanding the specific regulations and benefits offered by these states can lead to smarter purchasing decisions and better financial planning. By taking advantage of these opportunities, you can achieve considerable savings and optimize your vehicle acquisition strategies.

Considering More Than Just Sales Tax When Buying a Car

While states without a car sales tax may seem appealing, it’s important to consider additional factors like registration fees, insurance rates, and vehicle depreciation. For example, states like Oregon and Montana may have no sales tax, but their registration fees might offset these savings. In Oregon, the title fee and registration for a new vehicle can cost upwards of $200 to $300. [5]

Additionally, certain states may offer better car prices due to dealer discounts or lower overall vehicle costs. When considering where to buy a car, take into account not only the sales tax but also these other important costs.

Benefits of Buying in States with No Sales Tax on Cars

Significant Financial Savings for Car Buyers

Individuals purchasing vehicles in states without sales tax on cars benefit from immediate, substantial savings. The absence of sales tax on acquiring a new or used car can reduce the total cost of the vehicle, sometimes by several thousand dollars. Consequently, you can allocate this saved amount towards other essential expenses or long-term financial goals.

For example, on a $40,000 vehicle, avoiding a typical state sales tax of 6% instantly saves you $2,400. [6] This money stays in your pocket or can be used to enhance your vehicle with premium features.

Encourages More Frequent Vehicle Purchases

With lower financial barriers, consumers in these states can explore higher-end models or additional features that might otherwise be unaffordable. In 2019, the average vehicle ownership duration in the U.S. was about 11.8 years. [7] However, in states with no sales tax on cars, consumers might replace their vehicles more frequently due to the lower overall cost, stimulating the automotive market.

Enhances Financial Flexibility and Planning

States with no sales tax on cars enable you to use your financial resources more strategically. The savings accrued can be invested, saved, or utilized for other high-priority expenditures, such as education, healthcare, or home improvements.

These advantages are pivotal for anyone contemplating a vehicle purchase. The absence of sales tax can make a substantial difference, leveraging financial resources more effectively and contributing to broader economic optimism and growth. The notion of acquiring a vehicle becomes less daunting, freeing you to achieve your transportation goals without unnecessary financial strain.

States with No Sales Tax on Cars

Certain states have positioned themselves as havens of economic efficiency, offering residents and prospective car buyers substantial financial relief by eliminating sales tax on automobile purchases. Alaska, Delaware, Montana, New Hampshire, and Oregon are currently the states with no sales tax on cars. [3]

By removing this financial barrier, these states empower consumers to allocate their monetary resources toward other essential or aspirational expenses, seamlessly integrating the vehicle acquisition process into their broader lifestyle plans.

New Hampshire

New Hampshire offers car buyers a significant economic advantage by not imposing a sales tax on vehicle purchases. This makes it a highly attractive destination for prospective car owners.

Its reputation for fiscal prudence and consumer-friendly policies ensures more money remains in buyers' pockets, amplifying their purchasing power and financial freedom.

Expanding one's economic horizons in New Hampshire allows individuals to maximize their savings and potentially invest in higher-quality or more feature-rich vehicles, knowing that their budget is optimized. This aligns seamlessly with broader financial planning and lifestyle aspirations.

Oregon

Oregon stands out as economically favorable.

Benefiting immensely from its zero-sales tax policy on cars, Oregon offers a compelling destination for car buyers. Residents enjoy the exceptional advantage of purchasing vehicles without the additional financial burden of sales tax, creating a more cost-efficient buying process.

Consequently, Oregon is often celebrated for its forward-thinking approach to empowering consumers to acquire both new and used cars, fostering financial autonomy.

You can leverage these savings substantially.

Moreover, for those considering used cars specifically, the savings can be redirected towards necessary vehicle maintenance or upgrades, further enhancing the longevity and performance of the purchased car.

For instance, instead of directing funds toward sales tax, you can invest in upgraded vehicle features or even more sustainable options such as electric cars. This dynamic firmly supports both your immediate purchasing power and long-term financial health.

Moreover, as one of the few states with no sales tax on cars, Oregon presents an appealing case for economic prudence. Residents and prospective buyers planning a vehicle purchase will find their financial resources maximized, aligning perfectly with their broader life goals and aspirations.

In Oregon, the cost-efficiency extends to used cars as well. The thriving market for used cars benefits immensely from the absence of sales tax, making it possible for buyers to afford more reliable and well-maintained models without additional financial strain. This approach fosters a more dynamic and accessible automotive market, ensuring that quality used cars remain within reach for a broader segment of consumers.

Montana

Montana stands out among states with no sales tax on cars.

Unlike many other states, Montana does not impose a sales tax on vehicle purchases. [10] This unique characteristic allows for significant financial savings, making it an attractive destination for car buyers. In fact, Montana has seen a surge in out-of-state LLCs being formed solely to purchase vehicles without sales tax, especially among RV and luxury car owners. [11]

With these savings, you may choose either to upgrade your vehicle or allocate funds toward other essential financial goals. This strategic advantage fosters both immediate and long-term economic benefits for residents and non-residents alike.

The state’s tax policies reflect Montana’s commitment to economic freedom and consumer empowerment. Their robust, tax-free environment for car purchases enhances the financial autonomy of buyers, bolstering their overall purchasing power. This ability to direct funds efficiently underscores Montana’s progressive vision for financial well-being.

Purchasing a used car in states with no sales tax can also impact the broader automotive market. With more consumers able to afford dependable and well-maintained vehicles, there is a natural boost in market demand. This increase encourages dealerships to maintain a higher stock of quality used cars, ensuring ongoing availability and competitive pricing, ultimately benefiting both buyers and sellers in the market.

Delaware

Delaware provides a unique competitive edge, standing out among the states with no sales tax on cars.

By eliminating automobile sales tax, Delaware promotes a favorable fiscal environment, which can encourage higher consumer spending and investment. This tax exemption not only alleviates the financial burden on buyers but also enhances the state’s attractiveness in the automotive market. Consequently, Delaware experiences an influx of car buyers from surrounding regions keen to capitalize on these savings.

Additionally, Delaware showcases a commitment to fostering fiscal responsibility. By offering tax advantages, the state empowers its residents to make more financially sound decisions, supporting both personal and communal economic growth. This empowerment extends beyond individual benefits, highlighting Delaware's forward-thinking approach to economic development.

Delaware’s no-sales-tax policy on cars is a strategic move aimed at nurturing a robust consumer base and stimulating economic activity within the state. This progressive stance signifies a broader vision, which includes attracting a diversified group of buyers while ensuring sustained economic prosperity. Delaware’s innovative fiscal policies underscore its dedication to maintaining an advantageous economic landscape.

Alaska

Alaska stands out as a state without sales tax on cars, offering unique benefits to residents and car buyers.

Alaska does not impose a state-level sales tax on vehicle purchases. [12] However, it's important to note that some local municipalities may levy their own taxes, with rates ranging from 1% to 7%. [13] Buyers enjoy a diverse range of vehicles without added state tax costs, leading to significant savings on car purchases.

This commitment to a tax-free purchasing environment enhances Alaska's appeal as a destination for automotive shoppers.

You can use these sales tax savings to invest in better vehicles or allocate funds to other financial goals.

Alaska’s policy not only benefits its residents but also attracts buyers who prefer to avoid hefty sales taxes.

Factors to Consider When Buying Out-of-State

Purchasing a car from a state with no sales tax offers a bounty of financial advantages, but there are critical factors to consider. Firstly, you should thoroughly research your home state's tax regulations, which may require paying taxes upon vehicle registration.

Many states have a "use tax" equivalent to their sales tax that you'll need to pay when you register the car in your home state. [14] This could negate the savings you thought you'd get.

Additionally, potential differences in warranty services, dealership support, and transportation costs must be evaluated to ensure the overall savings justify the purchase. Shipping a car can cost anywhere from $600 to over $1,000 for cross-country transport, depending on the distance and method. [15] Understanding these nuances will empower you to make informed, financially beneficial decisions.

Vehicle Registration Requirements

Understanding Registration Mandates is Crucial

Another significant consideration when buying in these states is the requirement for proper vehicle registration. Ensuring that the car is properly registered according to your home state’s regulations is imperative for a legally compliant and hassle-free ownership experience.

Typically, the paperwork for obtaining registration involves proof of ownership and residency alongside the appropriate fee payments. This process highlights the importance of understanding and adhering to the specific legal obligations of both the state where the vehicle is purchased and your home state.

Purchasing a car in a state without sales tax doesn’t necessarily exempt you from tax obligations upon returning to your home state.

Documentation is Typically Straightforward

Most states require proof of ownership, such as the car title and proof of insurance. You should also be prepared to provide identification, proof of residency, and payment for registration fees. For instance, the average cost to register a vehicle in the U.S. is about $100, but it can vary widely by state. [17]

Researching the specific requirements of your home state ensures a smooth registration process after the vehicle purchase. Watching for any paperwork discrepancies and understanding registration timelines can prevent potential delays or fines.

Shipping and Transportation Costs

Car Shipping Entails Some Additional Financial Considerations

Prospective buyers should be aware that shipping costs vary significantly. The total expense can depend on various factors, including distance, mode of transportation, and the type of vehicle being transported. Therefore, it is advisable to obtain quotes from multiple shipping companies to ensure the best deal. Additionally, understanding the insurance coverage offered by the transport company can mitigate any risks associated with potential damages during transit.

Calculating These Costs is Relatively Straightforward

Online calculators provided by most shipping companies can offer instant estimates. This preemptive measure allows you to plan your budget meticulously and avoid unexpected financial burdens tied to transportation expenses.

The closer the car purchase location is to your home state, the lesser the potential shipping costs. Exploring regional listings or auto dealerships can substantially reduce transportation expenses and make the overall purchase more economical.

Including Transportation in the Overall Cost Analysis is Crucial

Shipping fees can sometimes be substantial, and neglecting this aspect can result in an underestimation of the true cost of the vehicle purchase. Factoring shipping into the financial equation ensures you have a clear understanding of your total expenditure, leading to more informed and advantageous decisions.

Title and Insurance Implications

Title Registration Must Comply with Both Purchase and Destination State’s Regulations

Obtaining a title for a car purchased in one of the states with no sales tax on used cars involves specific procedures that vary between states.

These requirements are critical to validating car ownership and ensuring all legal frameworks are observed, enhancing protection against potential disputes and future inconveniences.

Insurance Implications are Pivotal

Similarly, insurance implications are pivotal in the process of used car acquisition in these states. You must secure suitable coverage according to both the state's minimum requirements and any additional protection needed. In many cases, maintaining robust insurance safeguards against unforeseen events and contributes to financial peace of mind.

According to the Insurance Information Institute, the average annual cost of car insurance in the U.S. is $1,055, but rates can vary dramatically based on location and driving history. [18] Ensuring you're adequately covered is essential for protecting your investment.

Our Top Tips for Out-of-State Car Purchases

Embarking on the journey of purchasing a car out-of-state can be exciting, offering a variety of options and potential cost savings. However, it requires careful planning to make the process smooth and to maximize the benefits.

1. Research the Regulations: It's essential to understand any tax obligations, registration requirements, or legal considerations in both the state where you're buying the car and your home state.
2. Get a Pre-Purchase Inspection: Having a knowledgeable mechanic assess the car can save you from future headaches and unexpected costs. According to a survey by Angie's List, the average cost of a pre-purchase car inspection is between $100 and $200. [19]
3. Plan Transportation: Whether you decide to drive it home yourself or have it shipped, organizing this aspect in advance can prevent delays and additional expenses.
4. Complete Paperwork Accurately and Promptly: Mistakes or omissions can cause significant delays and complications in title registration and insurance.
5. Factor in Additional Fees: Anticipate expenses like transportation costs, registration fees, and potential environmental compliance charges to ensure the out-of-state purchase remains financially sound.

How to Qualify for No Sales Tax on Cars: State-by-State Breakdown

Some states without sales tax require specific conditions to be met for tax exemption:

• Montana: No residency requirement; anyone can register a car without paying sales tax, making it a popular option for RV and luxury car buyers. [11]
• New Hampshire: Similar to Montana, New Hampshire has no sales tax, but registration fees can apply depending on the car’s weight and type. For example, registration fees can range from $50 to over $100 annually. [20]
• Oregon: While Oregon residents enjoy no sales tax, buyers from out of state may still have to pay taxes when registering the car in their home state. [14]

Are There Refunds or Credits in No-Sales Tax States?

Some states without sales tax offer additional tax credits or exemptions for certain car purchases, especially for electric vehicles or those with special use cases. For example:

• Oregon: Offers tax credits of up to $2,500 for purchasing electric vehicles, even though there is no sales tax. [21]
• Montana: Allows out-of-state buyers to register vehicles tax-free, but you must meet your home state’s registration requirements to avoid paying taxes later.

Tax Incentives for Electric and Hybrid Vehicles in No-Sales Tax States

Many no-sales-tax states offer additional incentives for eco-friendly car buyers. For instance, Oregon provides substantial tax credits for electric vehicle purchases, which can further lower the overall cost of ownership. [21] Montana and Delaware also offer similar incentives for environmentally conscious buyers. In Delaware, residents can receive rebates of up to $2,500 for purchasing electric vehicles. [22]

State-by-State Vehicle Sales Tax Comparison: Rates, Credits, and Exemptions

For detailed information on sales tax rates and exemptions in various states, you might find our article on 0% sales tax states helpful.

State	State Sales Tax Rate	Credit for Tax Paid in Another State	Exemption for Occasional Sales	Comments
ALABAMA	2%	YES	NO	Tax on sales price of new/used vehicles, less trade-in
ALASKA	None	NO	N/A	No state sales tax on vehicles
ARIZONA	5.6%	YES	YES	Tax on new/used vehicles, less trade-in
ARKANSAS	6.5%	YES	NO	Special rules for used vehicles under $4,000
CALIFORNIA	7.25%	YES	NO	No trade-in credit allowed
COLORADO	2.9%	YES	NO	Excludes trade-in value
CONNECTICUT	6.35% on vehicles under $50,000	YES	NO	Exemptions for certain commercial vehicles
DELAWARE	None	N/A	N/A	No state sales tax
FLORIDA	6%	YES	NO	Trade-in credit allowed
GEORGIA	None	YES	YES	Sales tax on non-motorized vehicles like trailers
HAWAII	4%	YES	YES	Credit allowed for trade-in
IDAHO	6%	YES	NO	Exemptions for large commercial vehicles
ILLINOIS	6.25%	YES	NO	Private party vehicle use tax applies
INDIANA	7%	YES	NO	Credit allowed for trade-in
IOWA	5%	YES	NO	One-time registration fee applies
KANSAS	6.5%	YES	NO	Excludes trade-in value
KENTUCKY	6%	YES	YES	Exemptions for certain vehicles
LOUISIANA	4.45%	YES	NO	Excludes trade-in value
MAINE	5.5%	YES	NO	Excludes trade-in value
MARYLAND	6%	YES	NO	Motor vehicle administration handles taxation
MASSACHUSETTS	6.25%	YES	NO	Occasional sales taxed on vehicle or trade-in value
MICHIGAN	6%	YES	NO	Exemption for large commercial vehicles
MINNESOTA	6.5%	YES	NO	Special tax rate for used vehicles over 10 years old
MISSISSIPPI	5%	YES	YES	Lower tax rate for vehicles over 10 years old
MISSOURI	4.225%	YES	NO	Credit allowed for trade-in
MONTANA	None	NO	N/A	No state sales tax
NEBRASKA	5.5%	YES	NO	Credit allowed for trade-in
NEVADA	6.85%	YES	YES	Credit allowed for trade-in
NEW HAMPSHIRE	None	NO	N/A	No state sales tax
NEW JERSEY	6.625%	YES	NO	Exemptions for large commercial vehicles
NEW MEXICO	4%	YES	NO	Excise tax applies
NEW YORK	4%	YES	NO	Exemption for fleet vehicles
NORTH CAROLINA	3%	YES	NO	Credit allowed for trade-in
NORTH DAKOTA	5%	YES	NO	Credit allowed for trade-in
OHIO	5.75%	YES	NO	Use tax applies to out-of-state purchases
OKLAHOMA	1.25%	YES	YES	Credit allowed for trade-in
OREGON	None	YES	NO	Trade-in credit allowed
PENNSYLVANIA	6%	YES	NO	Trade-in credit allowed
RHODE ISLAND	7%	YES	NO	No sales tax, but excise tax applies
SOUTH CAROLINA	5%	YES	NO	Exemptions for certain trailers
SOUTH DAKOTA	4%	YES	NO	Credit allowed for trade-in
TENNESSEE	7%	YES	NO	Trade-in credit allowed
TEXAS	6.25%	YES	NO	Excludes trade-in value
UTAH	4.85%	YES	NO	Exemptions for large commercial vehicles
VERMONT	6%	YES	NO	Credit allowed for trade-in
VIRGINIA	4.15%	YES	NO	Credit allowed for trade-in
WASHINGTON	6.5%	YES	NO	Credit allowed for trade-in

For more details on state-specific tax rates, you can check our comprehensive guides on Arizona sales tax and Texas sales tax.

Conclusion and Final Thoughts

Buying a car is a significant investment, and the added cost of sales tax can make it even more expensive. However, by considering purchasing a vehicle from one of the states with no sales tax on cars, you can potentially save thousands of dollars. These savings can make a real difference, whether you're buying your first car, upgrading to a new model, or adding another vehicle to your collection.

It's important to do your homework—research both the state where you're buying the car and your home state's regulations to understand any tax obligations or requirements. Plan ahead for transportation, get a pre-purchase inspection, and make sure all your paperwork is in order. By taking these steps, you can enjoy the financial benefits and have a more satisfying car-buying experience.

Remember, knowledge is power. Use the information in this guide to make an informed decision that best suits your financial goals and driving needs. Happy car hunting!

[1] Tax Foundation, "State and Local Sales Tax Rates, 2021"

[2] Tax Policy Center, "State Sales Taxes," taxpolicycenter.org

[3] Investopedia, "States With No Sales Tax"

[4] Statista, "Used vehicles' share of U.S. vehicle sales 2020"

[5] Oregon DMV, "Vehicle Registration Fees"

[6] Example calculation based on a 6% sales tax rate

[7] IHS Markit, "Average Age of Vehicles on the Road"

[8] Federal Reserve, "Report on the Economic Well-Being of U.S. Households"

[9] Kelley Blue Book, "Your Driving Costs, 2020 Edition"

[10] Montana Department of Revenue, "Montana Sales Tax"

[11] Bloomberg, "The Billion-Dollar Loophole: Registering Luxury Cars in Montana"

[12] Alaska Department of Revenue, "Tax Division"

[13] Alaska Department of Commerce, "Local Sales Tax Rates"

[14] DMV.org, "Out-of-State Car Title Transfers"

[15] Move.org, "How Much Does It Cost to Ship a Car?"

[16] AAA, "Registering Your Vehicle"

[17] National Conference of State Legislatures, "Registration Fees By State"

[18] Insurance Information Institute, "Facts + Statistics: Auto Insurance"

[19] Angie's List, "How Much Does a Pre-Purchase Car Inspection Cost?"

[20] New Hampshire DMV, "Vehicle Registration Fees"

[21] Oregon Department of Environmental Quality, "Electric Vehicle Rebates"

[22] Delaware Division of Climate, Coastal & Energy, "Electric Vehicle Rebates"