Whether you’re a buyer or seller, there’s no doubt that the car-buying process can be both confusing and stressful if you’re not familiar with all the steps involved. Among the most confusing aspects of the process involves sales taxes. Maybe you’re not sure what the sales tax rate is for New Jersey or how to pay them. Perhaps you’re curious about how taxes work when you trade in your existing vehicle for a new one or if you sell your car privately.
To help clear up the confusion, our team at Schumacher Used has assembled this informative guide that covers how taxes work when buying or selling a vehicle here in New Jersey. In addition to learning about sales tax rates when buying or selling, you’ll discover all the benefits and convenience that come from selling your car to a dealership. Let’s get started!
Sales Tax on Vehicle Transactions in New Jersey
In New Jersey, you’re required to pay 6.625% sales tax based on the purchase price of the vehicle. Taxes and fees apply when you buy, title, and register a new or used vehicle. Even if you purchase a vehicle from out of state, you’re required to pay New Jersey car sales tax if you register it in New Jersey. Calculating the amount of taxes you’ll owe on a purchase is quite simple. Simply multiply the purchase price by 0.0625 to get the sales tax amount that you’ll owe. Below, you’ll find some frequently asked questions related to sales tax on vehicles in New Jersey.
Are Trade-Ins Taxed Differently?
Yes! Trading in your vehicle to a dealership has plenty of benefits including significant savings when it comes to sales tax. Let’s say that you’re trading in your old car that’s worth $5,000 on a used car at a dealership that’s priced at $15,000. In this scenario, you’ll only be responsible for paying sales tax on $10,000 as opposed to the full purchase price. Combined with the convenience of not having to sell the car yourself, trading in your vehicle can be quite rewarding.
How Do Taxes Work with Private Party Sales?
Just as you would with a purchase from a dealership, you’ll be required to pay sales tax on a purchase from a private party. Instead of paying the seller for the taxes, you’ll pay the state car sales tax when you bring the title to the New Jersey Motor Vehicle Commission to transfer and register the vehicle.
How Do Out-of-State Purchases Work?
Even if you buy a vehicle in a different state, you’re required to pay sales tax when you register the vehicle in New Jersey. While certain states don’t have sales tax on vehicle purchases, you’re responsible for paying New Jersey sales tax when you register the vehicle in the state. Certain states may be authorized to collect New Jersey sales tax on your behalf and will automatically apply the right amount to your purchase.
Do I Owe Sales Tax When Selling My Vehicle?
In general, the buyer is the individual that’s responsible for paying sales tax on the purchase of a vehicle. As a seller, you’re only required to pay taxes if there’s a profit made from the sale of your vehicle. For example, if you paid $2,000 and sell it for $5,000 – you’re responsible for paying capital gains tax on the profit made from the sale ($3,000).
Benefits of Selling Your Car to a Dealership
While we’ve covered the topic of taxes when it comes time to buy or sell a vehicle, there are a number of reasons to trust a dealership instead of a private party when buying or selling a vehicle. First and foremost, there’s so much time and effort involved in selling your car privately. You’ll waste time and resources advertising the vehicle, negotiating with total strangers, dealing with no-shows, and plenty of frustration from all of the paperwork necessary to complete the deal.
Instead, a dealership can handle all of the taxes, title, and paperwork on your behalf. Better still, a dealership lets you take advantage of significant tax savings by accepting your trade-in. Our goal is to make buying or selling your vehicle as simple and straightforward as possible. You’ll spend less time dealing with the process and more time enjoying your vehicle.
