Tax Laws for Purchasing a Car in Indiana

by Jennifer Mueller

If you buy a car in Indiana, expect to pay sales tax on your purchase plus an excise tax when you register your vehicle. The state assesses a 7-percent sales tax on your total purchase price at the time of publication. Although trade-in allowances or dealer discounts are deducted from the sales price, any manufacturer rebates do not lower your sales price for tax purposes. For example, suppose you decide to trade in your 10-year-old sedan on a two-year-old SUV the dealer has listed for $16,500. The dealer gives you $2,500 for your trade-in. That brings your taxable sales price down to $14,000, and you'd owe $980 in sales tax.

Sales Tax

Indiana dealerships collect sales tax on behalf of the state for car sales. However, if you buy the car directly from a private individual, you're responsible for paying the tax yourself at your local Bureau of Motor Vehicles branch when you apply for a title.

Since the sales tax is based on the purchase price of the vehicle, if someone gives you a car as a gift, you don't have to pay sales tax. Similarly, title transfers between family members are exempt from sales tax.

State residents who buy a car in another state and pay sales tax in that state still owe Indiana sales tax, but they get a credit for the amount of sales tax they paid in the other state. If the other state's tax rate is less than 7 percent, they must pay the difference to get an Indiana title for the vehicle. New residents who are simply transferring an out-of-state title to Indiana for a car they already owned when they moved do not have to pay Indiana sales tax.

Excise Tax

When you register your car for the first time, you must pay an excise tax in addition to the sales tax you paid. The amount of the excise tax is based on the age of your car and the manufacturer's original retail price. You determine the amount you owe based the Indiana excise tax table. Age is measured from the model year of the vehicle and decreases each year. For example, if that two-year-old SUV you bought had an original retail price of $25,000, you would owe $304 in excise tax. However, if you bought the same SUV when it was 10 years old, your excise tax would only be $36.

Some Indiana car dealerships have partnerships with the BMV that enable them to process title and registration for your car at the dealership -- otherwise, you have to go to your local BMV branch to register your car.

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