Purchasing a car can offer a refreshing experience because this process may seem straightforward. Initially, people can pinpoint a specific make and model that enhances their interest. Then, they make choices regarding features and the crucial choice of paint color. Subsequently, it tackles a search for a seller who provides top-notch service, an affordable price, and reliable post-sale support.
However, even if someone wants to manage and negotiate the purchase price down by thousands of dollars from the initial expectations when the time comes to set enclosure to paper, there might be a substantial additional expense that catches the eye. In such a case, the imposition of car sales tax can significantly inflate the overall cost of the car acquisition. So here we’re for you, to take you towards the five States without sales tax on cars and other expenses associated with buying a car, including a breakdown of the lowest sales tax rates by state.
5 States Without Sales Tax on Cars–2023
The local sales taxes constituted approximately 30% of the total revenue collected by states, as reported by the Tax Foundation. Sales tax revenue takes the second position in revenue generation, trailing only behind individual state income taxes, which contribute to around 40% of the total revenue. While the car sales tax rates are not equal across all states, some states still need to charge sales tax. Hence, residing in a state with lenient car sales tax policies could prove financially advantageous.
In such a case presently, five states refrain from levying sales tax on both new and used cars, just like Montana, Alaska, Delaware, Oregon, and New Hampshire. However, in numerous states, upon registering a car, the imposition of sales tax becomes mandatory within the registering state, provided it still needs to be settled at the time of purchase. Nonetheless, within these states, specific municipalities might approve excise taxes, income taxes, and other charges targeted at tourist destinations. With that said, let’s move on to each of the car sales tax-friendly States in detail:
Montana—0.00% Sales Tax
In general, the state of Montana enforces a 0% sales tax rate on car registration. Neither the state government nor the local authorities in Montana impose a sales tax. However, specific locales within Montana that draw a significant number of tourists may implement modest sales taxes, typically up to 3%. These are often referred to as resort and local option taxes aimed at supporting the infrastructure used by tourists.
In the last year, 2022, Montana enforced a moderate individual income tax, which can go as high as 6.75%. Meanwhile, to be eligible for this tax rate, the city must have a permanent population of fewer than 55 thousand residents. Some of the areas that fall under this category include Red Lodge, Whitefish, West Yellowstone, and Big Sky have the liberty to execute regional sales taxes.
The resident of any state of the USA can register the car with zero sales tax by forming an LLC in Montana. If you want to easily buy/register your car with affordable registration fees and no sales tax, then Montana is the best state among others.
You can save both your time and money by getting 5 Star Registration services from the comfort of your home. From creating a Montana LLC to registering your car, experts at 5 Star Registration will do. everything to ensure that you register your car without any hassle. The good thing is it’s very affordable and reliable.
Email or call the experts at 5 Star Registration to start the process of registering a car in Montana.
Alaska
Although Alaska does not have a statewide sales tax on car purchases, which is why it is known as the last frontier, local municipalities have the power to impose taxes on specific items and services. In Juneau Borough, for instance, a 5% sales tax is applied on qualifying transactions, and in the year 2020, it gathered more than 47$ million in sales tax revenue.
In contrast, Fairbanks and Anchorage do not impose any sales taxes. On average, across the state, municipal sales tax rates stand at approximately 1.76%. The Foundation of Tax regards Alaska as a tax-conducive state, primarily due to its cap on local sales tax at 7.5%, an average collaborative state and local sales tax rate of 1.76%, and the absence of an individual income tax.
Delaware
In Delaware, a gross receipts tax is applied to a business’s total gross revenues. Notably, this tax is imposed on the entity selling cars or any other product or service as opposed to the end consumer. But this State does apply a moderate state-level individual income tax, which can reach up to 6.6% in the last year, 2022. One noteworthy advantage is that Delaware doesn’t burden its residents with personal property, vehicle, or inventory taxes.
This State maintains relatively elevated corporate income taxes and applies supplementary charges on particular distributors of goods and services. This unique taxation approach enables the state to uphold a 0% property tax and refrain from the imposition of sales tax. However, this state does impose an 8.7% tax rate on corporate taxpayers. Thus, often referred to as the first state, it notably refrains from imposing a state sales tax on its residents and visitors.
New Hampshire
New Hampshire refrains from implementing a state sales tax, but it does introduce an 8.5% meals and rentals tax for prepared meals at restaurants, short-term room rentals, and car rentals. This Granite State has taken a stance against collecting sales taxes. It’s essential to consider that New Hampshire determines the absence of sales tax while having one position as the highest property tax rate nationwide.
On the other hand, the state’s income tax system is minimal, using solely interest income, such as earnings from high-yield savings reserves, and dividend income, such as returns from stock acquisitions. Additionally, a timber tax is employed at a rate of 10% based on the wood value at the time of cutting, excluding wood reaped for personal use. Since there is a statewide 0% sales tax on car registration, local governments are unable to charge traditional sales taxes.
Oregon
Oregon, the Beaver State abstains from imposing 0% sales taxes on car purchases, where the local communities have the authority to levy taxes on specific items, such as tobacco and pre-packaged beverages. Certain municipalities also introduce their own sales taxes, such as Ashland’s 5% tax on prepared foods. In terms of personal income tax, Oregon stands out with a moderately higher rate than the other states.
This state carries a notably elevated income tax burden, along with a moderately high property tax rate. However, it is essential to consider that this state does not charge taxes on intangible things such as stock and bond accounts. There is one exception mentioned on the Department of Revenue Oregon website (if a person wants to buy a new car) outside of the state, they are required to pay sales tax when registering the car.
Which State Offers the Most Tax-Preferred Environment?
Different states present advantageous tax policies, spanning from sales tax to income tax. Let’s take the outstanding example of Montana. It stands as one of the rare states where there is a zero sales tax when buying or registering a car. Another is Delaware, which boasts an absence of sales tax and ranks 7th nationwide for its modest median property tax rate.
Similarly, Alaska refrains from imposing state sales tax, even though Juneau carries a 5% local sales tax rate. It only imposes income tax across some of the states. Conversely, in four other prominent states like Oklahoma, North Carolina, Alabama, and Colorado – a vehicle purchase is subject to a sales tax rate below 3.5%. Wyoming is another noteworthy State of the USA famous for its low property tax, sales tax, and the absence of income tax.
Final Verdict: States Without Sales Tax on Cars
Due to the lack of federal regulation, the states have the autonomy to determine their introductory car sales tax rate. States such as New York and California have moderately high sales tax charges, whereas Montana, Delaware, and New Hampshire have lower rates.
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