Do frequent car buyers pay more money in tax?

Redsky33

Please give me your input if I understand car taxes correctly. Last time i purchased a new car I did pay over 9% sales tax.. If a person that changes car frequently let's say every 2 years over the next decade they will pay 45% in tax because they pay new tax with every purchase. (calculated from original price paid)

That is assuming that he sells the car privately. If he does a trade in on a new car portion of those taxes get refunded but he will lose out because he gets lower trade in value than selling privately.

Michaell

Redsky33 said:

Please give me your input if I understand car taxes correctly. Last time i purchased a new car I did pay over 9% sales tax.. If a person that changes car frequently let's say every 2 years over the next decade they will pay 45% in tax because they pay new tax with every purchase.

That is assuming that he sells the car privately. If he does a trade in on a new car portion of those taxes get refunded but he will lose out because he gets lower trade in value than selling privately.

No, you are only paying 9% tax on each transaction.

If you buy 1 car for $20,000, you pay $1800 in tax

If you buy 5 cars at $20,000 each, you pay a total of $9000 in tax. Still a 9% tax rate.

And, if you trade in, you only pay the tax on the difference. If cars 1-4 are worth $10,000 when you trade them in, you only pay tax on $20,000 plus 4x$10,000, or $5400. Net tax rate is 5.4% for $100k of purchases.

Redsky33

Thank you for your prompt reply. I added (calculated from original price paid) to my post. Over next decade total taxes on original purchase of $20000 like in your example will be $9000 total and that is 45% from original price paid. You are right that it is still 9% at every purchase. What a cost in taxes for frequent vehicle changers.

As I expected it pays to keep car for very long time because selling or trading-in comes with substantial cost. Getting tax refund by dealer mitigates taxes a bit but when adding dollar loss at trade-in plus dealer fees at every new car purchase it adds up.

Michaell

Redsky33 said:

Thank you for your prompt reply. I added (calculated from original price paid) to my post. Over next decade total taxes on original purchase of $20000 like in your example will be $9000 total and that is 45% from original price paid. You are right that it is still 9% at every purchase. What a cost in taxes for frequent vehicle changers.

As I expected it pays to keep car for very long time because selling or trading-in comes with substantial cost. Getting tax refund by dealer mitigates taxes a bit but when adding dollar loss at trade-in plus dealer fees at every new car purchase it adds up.

But you are making multiple purchases, so you have to look at the taxes paid against the total amount spent over the 10 years.