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I currently live in a state that doesn't allow a trade-in tax credit and I am considering buying a used car that resides in a state that does. I will probably trade in my car as part of the purchase, which raised a couple questions to me that I couldn't find answers for online:

  1. I am assuming that my state's tax policy applies, meaning I would pay my state's car sales tax on the full purchase price of the purchased car, and my trade-in value is irrelevant. Is this correct?
  2. If the dealer lowers the price to account for the trade-in, is that essentially the same as receiving the trade-in credit? Is this even possible?
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Car taxes when multiple states are involved can make the issue very complex, you will have to look at the documentation for the states involved.

It is likely that a vehicle that is purchased and immediately moved to your home state will be given a credit for the tax paid to the other state, but they won't waive all the taxes if they would have charged you a higher amount. They will of course want proof. Therefore if the other state collects $3,000 and they would have charged your $4,0000 they will require you to pay them the extra $1,000.

If you are buying from a dealership near the border they may be able to help with the paperwork. If you are buying from a private seller you will be on your own regarding all the paperwork and taxes.

If the money is going to workout the same, it can make sense to divide the transactions and sell the old car to a dealership in your state. One other benefit is that it lets you negotiate the sale without having to worry about the rest of the transactions, it wont be mixed in with the negotiation of the price of the car you are buying.

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