In general if the state one lives in has sales tax, one will pay sales tax on the purchase of any car, including purchase of used cars from a private party. Sales tax is one of the many things that can significantly increase spending on an auto purchase. The sales tax will be calculated based on the purchase price of the vehicle and the current tax rate of the city or locality it is purchased in. As well, most people pay vehicle licensing and registration fees when they purchase a new car.

Currently, in the US, there are five states that don’t have sales tax. These are Delaware, Alaska, Oregon, New Hampshire and Montana. However, before one thinks of heading to one of these states to purchase a car, one should know that taxes will be assessed in the state where the car is initially registered. Thus if a Californian purchases a car in Oregon, he or she will have to pay sales tax when registering the car in their home state.

The only way to avoid paying the tax is by registering the car in the state where one purchases it, if the state assesses no sales tax. This is actually fairly difficult. One must have an address in the state. So if one owned two homes, one in Oregon and one in California, it would be technically possible to purchase a car in Oregon and pay no sales tax in California.

However, people have, in the past, abused this law, and it has led to some crackdowns on vehicle licensing. It is illegal to register a car using a dummy address, for example, an address borrowed from a friend. Generally, if one has an out of state license on a new car, he or she can still be assessed a tax if he or she really lives in a state with sales tax. Further, one could be charged with tax evasion, or pay fines for not registering the car sooner, in one’s home state.

If one does happen to live in a state with no sales tax, and is planning on purchasing a car and moving to a state with sales tax, the person should purchase the car 90 days prior to moving. This means one will not have to pay sales tax when one registers the car in the new state. This is not evading the tax, but simply being sensible about when to purchase a vehicle if one is considering relocating.