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Best State to Buy a Car

A car may be one of the most expensive things you ever buy and the taxes and fees on top don’t help. You can expect to pay 8% to 10% of a car’s sales price in taxes, title and license fees, what the dealership often calls TT&L. Where you live might make a big difference — thousands could stay in your pocket or go to state coffers. To figure out the worst and best states to buy a car, we looked at each state’s auto sales tax rate and average department of motor vehicles (DMV) fees for new and used cars bought from a dealership based on average transaction prices in early 2019. Here’s what we found.

Best states to buy a car

  1. New Hampshire
  2. Alaska
  3. Oregon

These states are among a handful that don’t charge a statewide sales tax. They do charge DMV fees, but they were low, at $60, $100 and $187 respectively.

Most states have a car sales tax plus motor vehicle fees. Some states that don’t charge sales tax on vehicles may instead have a car transaction specific tax, such as Georgia, which has a statewide “title ad valorem tax” or TAVT of 7%.

New Hampshire may be the least expensive place to buy a new car, but it only accounted for 0.6% of new vehicle registrations in 2018, according to the National Automobile Dealers Association (NADA). Alaska accounted for even fewer registrations, at 0.2% and Oregon accounted for a full 1%.

Can I go buy a car in a zero-sales-tax state and pay no taxes? 

Not really. No matter where you buy a vehicle, you will pay taxes and fees based on your residential address.

Best states to buy a car don’t always have the best lemon laws. 

Even if it is inexpensive to buy a car in your state, it won’t do you much good if you wind up with a lemon, a car that has problems almost as soon as you buy it.  State lemon laws protect consumers in this situation but different states have different rules on what types of cars are covered and for how long.

  • New Hampshire lemon laws cover new cars for a year from the sale date. They do not cover used cars or leased cars, with some exceptions.
  • Alaska lemon laws cover new, purchased vehicles during the warranty period. They don’t cover used or leased vehicles.
  • Oregon lemon laws cover new, used and leased vehicles as long as the car still has a warranty, for 24,000 miles or two years after the sale date.

For more on lemon laws in your state, you can use resources by the Better Business Bureau.

Worst states to buy a car

  1. Nevada
  2. Maine
  3. Minnesota

Nevada, Maine and Minnesota don’t have the absolute highest statewide auto sales tax rates, but combine fairly high rates with high average DMV fees, and drivers in these states pay around $3,000 for the average new car and nearly $2,000 for the average used car.

Nevada placed first for being the worst state to buy a new car with the average paid in sales tax and DMV fees being almost $3,100 per car. For used cars, however, Nevada buyers fared a little better with Maine taking the top spot.

Out of the three, Minnesota dealerships tend to do the most car sales business. In 2018, it had $15.3 billion in total sales and $1 billion paid in sales tax, compared to Maine’s $4.2 billion in total sales, $234 million in state sales tax and Nevada’s $8.7 billion in sales and $424 million in state sales tax.

Good lemon laws in the worst states to buy a car

The good news is that all three states have lemon laws that cover new and used cars for more than a year after the vehicle’s original delivery to a customer.

  • Nevada lemon laws apply to new and used cars as long as the car is within warranty, within 18 months of the vehicle’s original delivery to the buyer. They do not cover leased cars.
  • Maine lemon laws apply to new, used and leased cars as long as the car is within warranty, within three years of the vehicle’s original delivery date to the customer.
  • Minnesota lemon laws apply to new, used and leased cars as long as the car is within warranty, within three years of the vehicle’s original delivery to a customer.

States that collect the most in car sales tax

  1. California
  2. Texas
  3. Florida

We were surprised that some states known for a love of cars were not included as the best or worst states to buy a car in. So, to get a more complete picture, we looked at the NADA data that reported how much sales tax income each state got from auto dealers in 2018. Out of all 50 states and D.C., the states that collected the most in car sales tax were: California with $8.7 billion, Texas with $5.8 billion and Florida with $4.8 billion. While almost 20% of states had a higher state-wide auto sales tax (or title ad valorem tax), a lot of car buying in these states combined with their 6% auto sales tax meant their coffers benefited greatly.

Methodology

We ranked the U.S. states and Washington, D.C., based on how much car buyers would pay in states sales tax and DMV fees, according to 2019 average car prices.

Sales tax

To determine state sales tax, we only accounted for the statewide sales tax applied to the sale of vehicles to consumers. This rate can be different than the state’s general sales tax rate. It does not include sales tax charged by cities or counties. All tax rates were sourced from the Indiana Department of Revenue, which compiles state sales tax for auto dealerships selling to buyers across the country. Rates were last updated in February 2019 and spot-checked against other state websites.

Average DMV fees

The average DMV fees per state were sourced from the industry site Edmunds. There are cases where states may not charge a statewide vehicle sales tax per se, but instead charge an equivalent DMV fee. Delaware, for example, has a DMV “document fee” of 4.25% of the car’s purchase price or its value, whichever is greater. That’s why Delaware’s DMV fee is a percentage rather than a flat charge.

Total paid in sales tax and DMV fees

We calculated this by multiplying the sales tax rate by the 2019 average car price and then adding the average DMV fee.

New and used average car prices

According to LendingTree, the average new car transaction price was $37,185 in May 2019 and the average used car transaction price was $20,247 in Q1 2019.

Amount of state sales tax collected from auto dealers and amount of auto dealers

These numbers were sourced from data published by the National Automobile Dealers Association (NADA).

 

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