How to Calculate Sales Tax on a Car

by Michael Keenan

When purchasing a new car, you need to be aware of the total cost of the vehicle, which can be higher than the sticker price. According to Edmunds, car prices are set without including the sales tax and other costs such as destination fees and options. In order to accurately calculate how much sales tax will be on a car purchase, you need to know the cost of the vehicle, the way the taxable sales price is calculated in your area and the sales tax rate.

Contact your state department of revenue to determine the sales tax rate and the method for calculating your sales tax. For example, some states assess sales tax based on the final price of the car, allow the price to be reduced by the value of a trade-in or do not include cash incentives in the sales tax calculations.

Calculate the total cost of the car including destination fees and options. For example, if the base price is $12,000 but you have $500 in options and a $300 destination fee, the total price would be $12,800.

Subtract the value of cash incentives and your trade-in, if your state allows you to deduct those from the sales price when determining the sales tax. For example, if your state allows the price for the purposes of sales tax to be reduced by your trade-in and you have a $3,800 trade in, subtract $3,800 from $12,800 to get a taxable total of $9,000.

Multiply the taxable sales price by the sales tax rate. Continuing the example, if your sales tax rate is 7 percent, you would multiply 0.07 by $9,000 to find that you would owe $630 in sales tax.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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