Car Tax Explained: Basic Car Tax Rules and Regulations

March 6, 2012

Your car tax and fees will depend on your state. You may owe sales tax, a titling fee, a registrations fee, a vehicle excise duty, or an import tax.

In the United States, car tax is imposed when you buy a vehicle, whether used or new. New car tax prices and used car tax prices depend almost entirely upon the state in which you reside and where you're purchasing the vehicle from. Because this is not a federally regulated set of tax laws, each state has its own slightly different procedure for paying these taxes.

Sales Tax
As with any purchase, you must pay sales tax in the state where you buy the car. This amount will vary by state.

Vehicle Titling Fee
The title of your vehicle is essentially the deed that states that you are the official owner of that car. Without a title, the car doesn't legally belong to you. It's illegal for a car to not have a title. Most new car dealerships will assist you through the titling process, and the fee you pay to title the car is dealt with as part of your transaction with the dealer. If you're buying a used car from an individual, you have to take the initiative yourself to title the vehicle and transfer the ownership over to you.

To do this, you need to work together with the seller of the car and the DMV in your area. DMV's have applications you can fill out to apply for a new title for the car. The process of getting the title in your name is referred to as a vehicle "title transfer." There is typically a nominal fee associated with this process, and it's only necessary to do it once.

Vehicle Registration Fee
There is also a mandated fee to register any vehicle you plan to drive. The registration for the car ensures that you're legally able to operate that car. To prove that you registered a car, the DMV provides unique license plates for that car, and stickers for those license plates. Every vehicle that is driven on public roads must be registered, and the registration process must be renewed every year. The exact cost to renew the registration on your vehicle and the regularity with which you have to complete this procedure depends on the state. More information can be found at your DMV.

Vehicle Excise Duty
Vehicle Excise Duty (VED), also known as road tax, can be even more confusing than the state to state sales tax laws, as these also vary depending on where the vehicle is registered. In most states, this tax is included in the Department of Motor Vehicles' vehicle registration fee, which generally is transparent and straightforward. However, in some US states, the fee is separate and based on several factors regarding the type of vehicle you purchased. These may include the percentage of annual emissions the car produces and how it effects the environment. Some states disregard this aspect and charge on a sliding fee scale based on how much the vehicle weighs. It is important to check with the Department of Motor Vehicles in your state to make sure all fees are clear and understood before purchasing and registering your new car.

Import Tax
Less common for the average driver, if you purchase a vehicle abroad that you bring into the United States, you need to pay import tax on that car. Ask the DMV for additional information if this case applies to you.

Discounts on New Car Taxes

While figuring out which taxes you owe when purchasing a new car can be frustrating, the good news is that there may be some ways around it, due to some new government regulations and stimulus benefits available to a majority of US citizens. These discounts are based on family income as well as in which state the car is purchased. There are some restrictions regarding what the total price of the vehicle may be, however the limitations are not unreasonable, capping at around $49,000 for one household. Should you qualify for these discounts, you would not have to pay any state new car taxes.

Contact a dealership to ask about any special tax discounts or rebates being offered as an incentive for buyers purchasing a new car for the first time. There are many resources beyond the DMV as well to get all of your tax questions answered in your particular state.

How to Stay Updated with New Car Tax Rebates

There are many dealership rebates for new car tax that can reduce the cost of buying a new vehicle. New government incentives in recent years have sprung up in order to assist the ailing auto industry and encourage people to purchase newer vehicles at more reasonable prices.

Keep in the Loop
Most dealership incentives are advertised in the sales pages of the newspaper. Government incentives are actually announced on the news. It is sometimes possible to use both concurrently and save yourself even more money. To stay ahead of news such as this and keep updated with government and dealership rebates, it is best to check online. News such as this will always be reported on the Internet and specific sites for cars and auto dealers.

Check Alternative Fuel Sites
Keeping abreast of alternative fuel websites might give you the heads up before anyone else. Alternative fuel is becoming more prolific in the struggle for economical vehicles. The government will continue to provide rebates and incentives to try to boost the economy and, so keep your eyes open for new rebates based on advances in fuel technology.

Car Tax in the UK

Owners who have registered in the UK must have a certified registration from the government that states they own the car they are driving or using. The title or the deed of the sale must contain the name of the owner, the address of the owner (even if the car is rented), the registration plate number and details about the car. If the vehicle is kept off the road, the car must have a SORN or Statutory Off Road Notification Disc on it. If not, the vehicle can be clamped and removed by officials.

How Do I Pay Tax on My Vehicle?
In order to pay the tax on your vehicle, you need the following documents: a completed V11 reminder or V10 Application form for a Tax Disc; a registration certificate or a V5 form; and a V62 application for a vehicle registration certificate. Each of these forms have to be filled in completely and submitted along with an MOT test certificate that ensures your vehicle is more than three years old. You will also have to apply for car insurance and submit that along with the application forms.

What Is the Cost of the Car Tax?
In recent years, new rules and regulations have come into force. Different tax brackets have been set up for different models of cars. The tax classes are dependent on CO2 emissions, fuel type used, the age of the car and the variety of car. Tax brackets range from negligible payments up to Â£1,000 per car. You can use the UK government site Directgov to find out exactly which bracket your car falls into. If you are still finding it difficult to calculate the tax you have to pay, you can easily use online calculators found at sites like Parkers, or log on to manufacturers websites based in UK to get accurate information. For example, if you own an Audi, you can log on to Audi UK to find the exact tax bracket your car falls into.

What Do I Do with the Tax Disc I Get after Car Tax Payments?
You will be issued a car tax disc on payment of your car tax. You have to display it on the passenger side of the vehicle. Make sure you replace your car tax disc regularly. The new tax disc is only valid from the first day of the month you have been taxed from. Failure to display the disc will result in fines of Â£200. You cannot transfer the disc between cars. If you have paid your tax by mail, you are allowed an exemption of five days while your tax disc arrives by post. If you are not using your car, you have to have a SORN disc to display on the window. You can apply for the SORN disc here.

Please note that rules and regulations regarding road and car tax are liable to change according to the government. Keep in touch with government websites to make sure you have paid the right road tax for your car model.