Sales Tax: Trading In, Selling and Buying a Car

Taxes are a very funny thing sometimes. We all complain about having to pay them but as a general rule of thumb, if you pay income taxes, it probably means that you made money and that is not a bad thing. Likewise, paying taxes when you buy a new car, at least in some states, could indicate that you made more money on your old car by selling it yourself!

Here is how it works if you sell your old car:

Step 1: You sell your old car and get more than you would at the dealer’s for trade in.

Step 2: You buy a newer/better car from a dealer or a private seller.

Step 3: You register your car and pay sales tax on that purchase in every state except Alaska, Delaware, Montana, New Hampshire, and Oregon.

Here is how it works if you do a trade in:

Step 1: You trade you old car into a dealer and get less than you would if you had sold it yourself.

Step 2: You pick out your newer and/or better car at the dealership.

Step 3: You pay the registration to the dealer and in every state except California, the District of Columbia, Hawaii, Maryland and Michigan, you will get a deduction for the sales tax on the purchase but you will be taxed on the title transfer fees that the dealer charges you.

So, in every state except California, the District of Columbia, Hawaii, Maryland and Michigan if you sell your car yourself and then buy a car, you will pay sales tax but you actually got a lot more for your car that you sold! Does it balance out? Yep- it actually still means that you are putting money in your pocket to go towards that next purchase.

Making money after taxes is what it is all about!

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