Sometimes you just need a car
When I bought my first car I was a young, broke college student who desperately needed a reliable way to get from point A to point B.
You see, In the United States, cars tend to be a necessity in most towns and cities, unless the city has good alternate transportation, like a bus system. It’s a vast country, and it’s safe to say that most towns take full advantage of the space and you’ll find businesses and homes quite spread out.
Unfortunately, I was clueless about what the process of buying a car looked like.
A big investment
The thing is, cars are not cheap; not even the not-so-great-ones. For many of us, it’s our first big investment. You can literally find a car of every price range, but if you expect to buy a new car, expect to shell out on average over $47,000. At this price, you may be better off if you just rent a Ferrari.
Why buy used?
The high price tag of purchasing a new car is the reason why many people look into other methods of buying a vehicle, such as buying a used vehicle from a car dealership, or even looking a little closer to home.
Even buying a used vehicle carries costly fees
When I bought my used car back in 2004 little did I know that there were a lot of additional fees involved with purchasing the vehicle from the car dealer. Where I was living in Illinois, the add-on fees such as the state sales tax, the county sales tax and the city sales tax were a whopping 9% of the purchase price of the car. This fee didn’t include the cost of vehicle registration, title, plate fees, and the fee the car dealership charges for preparing and filing the paperwork for the vehicle.
All those years ago, I ended up forking out $4000 for a used car from a used car dealership, but for many people, they need to only look as far as their own backyard to get the keys to their own vehicle. For young high school or college students, it’s not uncommon to pick up a hand-me-down vehicle from a friend or family member.
It would appear to be a win-win situation. After all, if you buy your car from a family member, you can avoid all of those costly fees, right?
So, do you have to pay sales tax when buying a car from a family member?
Yes, but it depends.
In the United States, if you purchase a vehicle from an individual, even a family member, this is considered to be a private party sale.
If there is any money exchanged between two parties, then it is considered a sales transaction. As such, there is a sales tax that is owed to the state that, by law, must be paid.
There are a few situations in which someone could get away with not paying sales taxes.
First, if your family member gives you the car as a gift then you, as the recipient, will not have to pay any sales tax on your new car.
The fact that the car is a gift must be clearly stated on the back of the car title or deed that is exchanged between family members.
You also can avoid paying sales tax if your vehicle is being used as farm equipment.
Lastly, you do not have to pay sales tax on your car if it was purchased in a state where there are no sales taxes on purchases. Alaska, Delaware, Montana, New Hampshire, and Oregon are states that currently don’t charge drivers sales tax for car purchases.
Don’t think that you can just purchase your vehicle quickly in a tax-free state and bring it right back to your home state. You would just have to pay your state’s sales tax once you register your vehicle.
Lessons learned? Buying a car is not cheap! Family and friends can be a huge help when you’re trying to get a car, but it’s still important to do your research so your car purchasing process is smooth…and legal!