No matter if you’re on the buying or selling side of the transaction, it’s common to experience stress or confusion during the car-shopping process if you’re not acquainted with the necessary steps. Perhaps the most confusing topic related to the process involves paying sales tax. Some shoppers aren’t sure what the New Jersey sales tax rate is or how it impacts the final price you pay for a vehicle. You may also be wondering about how sales tax works when trading in your current vehicle or a new one or if you choose to sell your car to a private party.
In an effort to set the record straight, our team at SchuCar has created this handy guide that covers the topic of sales taxes from both the buyer’s and seller’s perspectives during a transaction here in New Jersey. Along with information about sales tax rates, you’ll learn about the advantages and extra convenience that come from selling your car to a dealership. Let’s dive in!
Sales Tax on Vehicle Transactions in New Jersey
As of this writing, the current sales tax rate for a vehicle in New Jersey is 6.625% based on the purchase price. Whether it’s a new or used vehicle, you’ll be responsible for taxes and fees when the vehicle is bought, titled, and registered. When the vehicle is purchased out of state, you’re still responsible for New Jersey car sales tax if the vehicle is registered in New Jersey. Determining the exact amount of tax that you owe on a purchase actually isn’t too complicated. All you need to do is multiply the purchase price by 0.0625 to get the sales tax amount that you'll owe. You’ll find some of the most commonly asked questions regarding sales tax on vehicles in New Jersey provided below.
How Do Taxes Work with Private Party Sales?
• Similar to how you’d pay taxes on a vehicle purchase at a dealership, you’ll still be required to pay sales tax on a purchase from a private party. Rather than paying the seller for the taxes, you’ll bring the title of the vehicle to the New Jersey Motor Vehicle Commission to transfer and register the vehicle. You’ll pay the sales tax for the vehicle at that time as well.
Are Trade-Ins Taxed Differently?
• Yes! You’ll enjoy a variety of savings and perks in terms of sales tax when trading in a vehicle to a dealership. For example, imagine that you’re trading in your old car that’s valued at $15,000 for a used car at the dealership priced at $25,000. In this situation, your sales tax liability would be for a total transaction value of $10,000 instead of the full purchase price. When you factor in the tremendous convenience that comes from not having to sell the car yourself, it’s easy to see how rewarding it can be to trade-in your vehicle.
Do I Owe Sales Tax When Selling My Vehicle?
• For the vast majority of transactions, it will be the buyer’s responsibility to pay sales tax on the purchase of a vehicle. Sellers will only be required to pay taxes on the sale of the vehicle if a profit has been made. As an example, if you sell a vehicle for $25,000 that you only paid $22,000 to acquire – you’re responsible for paying capital gains tax on the profit from the sale ($3,000 in this example).
How Do Out-of-State Purchases Work?
• You’re still required to pay sales tax when you register a vehicle in New Jersey even if it’s purchased from a different state. Although some states don’t have sales tax on vehicle purchases, it’s your responsibility to pay New Jersey sales tax when registering the vehicle here in this state. In some cases, another state may be authorized to collect New Jersey sales tax on your behalf and will automatically apply the right amount to your purchase.
Benefits of Selling Your Car to a Dealership
Now that you have a better understanding of how taxes work when buying or selling a vehicle, it’s important to consider the advantages of trusting a dealership when buying or selling a vehicle as opposed to a private party. In terms of convenience, there’s simply no comparison between the two options. Selling your vehicle privately involves wasting time dealing with no-show buyers, haggling with total strangers, dedicating your valuable time and resources to advertising the vehicle, and navigating confusing paperwork when finalizing the deal.
Rather than dealing with all that hassle, trusting a dealership means that you can sit back while a team of experienced professionals takes care of the taxes, title, and necessary paperwork. Even better, trading your vehicle into a dealership allows you to take advantage of significant tax savings on the transaction. SchuCar is dedicated to making your next buying or selling experience as convenient and stress-free as possible. This means you can spend less time dealing with headaches and more time enjoying your new vehicle!