If you reside in NJ and are considering buying a vehicle, you must first learn about the sales tax on cars in New Jersey. You need to pay sales tax to the government whether you are buying a brand-new car or a used one in or out of your state.
Each American state has its own sales tax on cars. Some are acceptable, like car sales tax in New Jersey, whereas others are skyrocketing, like in Nevada. The bottom line is that you must pay some percentage of sales tax to your state based on the vehicle’s purchase price.
This sales tax is not only for the residents of New Jersey. It applies to anyone who wishes to register their vehicle in NJ despite their resident state. Knowing about sales tax on cars in NY, NJNJ, and all the other American states is crucial because it gives you a precise figure of all the costs of buying a car.
This way, you will learn if a vehicle is within your budget and where and how you will spend your money. To help you learn everything regarding NJ sales tax on a car, we bring you this beginner-friendly guide that will walk you through every crucial detail effortlessly.
What Is Sales Tax?
A sales tax is a consumption tax imposed by the government on the sale of goods and services. It is about a percentage of the purchase price and is added to the final cost of the service or product.
You pay sales tax on groceries, clothing, cars, medicines, and other items. In the USA, the sales tax is levied by the state, not the center, meaning it is more of a state or local tax. It is the reason why sales tax rates vary from state to state in the country.
How Is An Automobile Defined In the Sales Tax?
Per the American Sales and Use Tax Act, a motor vehicle or automobile is machinery designed for operation on public roads and highways and powered mechanically via a motor. Motorcycles, Cars, Trucks, and House Trailers are some prominent examples.
However, types of machinery like snowmobiles, lawn tractors, all-terrain vehicles, and bulldozers are not considered motor vehicles. So, you will have to pay sales tax only on those considered motor vehicles by law.
What Is The Sales Tax On Cars In New Jersey?
Almost every state in the United States levies sales tax on car purchases. The only states where you are exempted from the stress of sales tax are Alaska, Oregon, Montana, Delaware, and New Hampshire.
All the remaining states have local and sales tax on buying a car. The sales tax rates differ from state to state. The sales tax on cars in New Jersey is 6.625%. Whether you purchase a brand-new or used vehicle, you must pay sales taxes on it.
In addition to base state sales tax in NJ for cars, you also have to pay local or county sales tax. The average total car sales tax across the entire state of New Jersey is 6.628%.
Cumberland County of New Jersey has the highest combined sales tax rate at 8.625%. Meanwhile, every other state county has a combined sales tax rate of 6.625%.
How Do You Calculate The Car Sales Tax In New Jersey?
To find out the exact figures of NJ auto sales tax you owe to the state, you need to calculate. You can take the help of several NJ vehicle sales tax calculators available online.
If not, you can always calculate it yourself by following the steps below:
- First, take the state-wide sales tax rate of 6.625%.
- If there is any applicable city, county, and special district tax, add its rates to the state sales tax rate.
- Now, multiply the combined tax percentage with the sales price of your vehicle.
- The resultant figure you get is the total sales tax due for payment.
For example, suppose you buy a new car that costs $28,000. If you multiply this price by the state sales tax of 6.625%(assuming no county tax), you will get the resultant figure of $5,398.31. Thus, a vehicle with an MSRP of $28,000 will cost you $5,398.31 in state sales tax.
What Are The Additional Fees When Buying A Car In New Jersey?
Apart from the sales tax, you must also pay additional fees to own a car entirely in New Jersey. It does not matter whether it is a used or new car; New Jersey has some mandatory fees that a car buyer needs to pay.
Car buyers in New Jersey need to pay registration and title transfer fees. These fees vary depending on the type of your vehicle and the medium of your payment for it. But one thing to remember is that these Motor Vehicle Commission fees are not taxable.
New Jersey’s standard title transfer fee is $60. However, if the car you are buying has a lien, the cost increases to $85, and with two liens, you will have to pay $110.
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The State of New Jersey gives you 10 days to transfer the car’s ownership from its previous owner to yourself. If you cannot do so within this timeline, you will have to pay a late fee of $25.
Another crucial thing to know is that the titling fees are only due at the time of ownership transfer. But the registration fees are due every year. The registration fee ranges from $46 to $98 in NJ based on the age and weight class of your ride.
What Are Documentation Fees?
If you are buying your vehicle from a dealership in New Jersey, they will handle your title, registration, sales work, tax documents, and other car-related work for you. The dealership will charge you “documentary service fees” to process your documents.
Documentary fees are not required by New Jersey or any other US state. They are considered to be the expenses of the car dealers or services necessary to complete the car sale. And both of these are legally required to be included in the vehicle’s sales price.
How Much Documentation Fees Do You Need To Pay In New Jersey?
The documentation fee that is charged by a car dealership when you buy a car from them also covers the cost of preparing and filing all the paperwork related to your vehicle.
The state law does not limit the amount of document fees a car dealer can charge. In New Jersey, the average cost of documentation fee is $335. But this number for you can differ based on the car dealership and the type of vehicle you choose.
What Is Car Trade-In & How Is It Taxed In New Jersey?
A car trade-in is when you exchange your old car at a dealership, and they give you a credit that you can apply when buying a new vehicle from them. For example, you trade in your old car for $ 7,000 and then buy a new car for $25,000. The final taxable price for your new motor vehicle will be $18,000.
It only happened because the sales tax on cars in New Jersey does not apply to your trade-in value. However, you will not always get credit against the sales price for the value of a trade-in.
A trade-in credit is permitted in New Jersey only if:
- The vehicle you are trading in falls under the “motor vehicle” as defined in the Sales and Use Tax Act;
- You are selling your motor vehicle to a registered car dealership that takes trade-ins for resale;
- The trade-in and purchase of a new vehicle are administered at the same time.
Are Manufacturers’ Rebates & Dealer Incentives Taxed In New Jersey?
Dealer incentives and car rebates are taxed in New Jersey. The dealer incentives and manufacturer rebates are generally cash deals. It is because New Jersey sales tax car prices before you apply any of the incentives or rebates.
So, whether you use the rebate from the manufacturer or any credit card program, you will have to pay the average 6.625% sales tax on the original market price of the vehicle.
Do I Need To Pay Tax If I Buy A Car From A Private Seller?
Whether you buy your motor vehicle from a car dealership or a private seller, you must pay the sales tax. But the payment procedure changes when you buy from a private seller. You do not pay the sales tax on cars to the private seller from whom you are buying.
You will pay the state the 6.625% sales tax when you go to the Motor Vehicle Commission of New Jersey to transfer the title and register the vehicle.
Is There Any New Jersey Car Sales Tax Out-of-State?
If you decide to buy your next car from a private seller or car dealership outside of New Jersey, you do not need to pay them any tax. An out-of-state car dealership can collect the sales tax from you only if it is authorized by the state to collect New Jersey sales tax.
If the dealer is not authorized, you do not have to pay them the sales tax on your purchase. However, remember, you are not exempted from paying tax simply because you bought your ride outside NJ.
When you title or register the vehicle, you will have to pay sales tax on cars in New Jersey for your out-of-state motor vehicle purchase.
How Do You Register A Vehicle In New Jersey?
After you have bought a vehicle and wish to drive it legally on the roads of New Jersey, you need to register it.
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To register your brand-new or used car, you need:
- Title;
- Driver’s license or other valid IDs;
- New Jersey insurance card or company name & policy number;
- Completed Vehicle Registration Application Form (Form BA-49);
- Power of attorney (if someone other than the purchaser is signing the documents);
- Dealer reassignment documentation, if applicable;
- Lien holder information and financing statement if the vehicle is leased or financed.;
- A completed Application for a Certificate of Ownership (If the ride is transferred from another state).
When Is A Car Purchase Subject To Sales Tax In New Jersey?
You are bound to pay sales tax on cars in New Jersey if your purchase falls under any of the following conditions:
- You are a New Jersey resident;
- You have a place in New Jersey;
- You are a business purchaser who maintains a place of business in New Jersey;
- You will use the motor vehicle for business purposes in this State.
When Is A Car Purchase Exempted From Sales Tax In New Jersey?
You will not always have to pay tax. Under New Jersey sales tax car exemptions, you will not have to pay the tax if your car purchase falls under any of the following conditions.
You are exempted from the tax if:
- You received the car as a gift;
- You are a nonresident and have no home in New Jersey;
- You are an exempt organization with a valid “Exempt Organization Certificate” for the exclusive use of the vehicle;
- You are a person recognized as a Foreign Diplomat by the United States of America;
- You claim to use the car in an exempt manner, like a limousine company.
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Which American States Have The Highest Sales Tax Rates?
The highest sales tax rate in the USA is around 11%. That’s right. Some states will charge you over 10% on the purchase of a new or used car.
To protect yourself from paying such high sales tax, you should make yourself familiar with the states:
- Missouri: 10.1%
- California: 10.25%
- Washington: 10.4%
- Kansas: 10.6%
- Illinois: 11%
- Alabama: 11%
- Arkansas: 11.25%
- Arizona: 11.2%
- Colorado: 11.2%
- Louisiana: 11.45%
- Oklahoma: 11.5%
What Are The American States With Affordable Sales Tax Rates?
Knowing the sales tax rates of other states is crucial, especially if you are considering out-of-state purchases. In the US, the sales tax for most states falls between five and ten. Hawaii and North Carolina are the only two American states with car sales tax rates lower than 5%.
But a handful of states have tax rates between 5% and 10%. These are the best ones, and you can check them out below:
- Maine: 5.5%
- Wisconsin: 5.6%
- Washington, D.C.: 5.75%
- Wyoming: 6%
- Kentucky: 6%
- Maryland: 6%
- Michigan: 6%
- Massachusetts: 6.25%
- Connecticut: 6.35%
- South Dakota: 6.5%
- Indiana: 7%
- Iowa: 7%
- Pennsylvania: 7%
- Vermont: 7%
- West Virginia: 7%
- Rhode Island: 7%
- Virginia: 7%
- Nebraska: 7.5%
- Alaska: 7.5%
- Florida: 8%
- Mississippi: 8%
- Ohio: 8%
- Nevada: 8.27%
- Texas: 8.25%
- Minnesota: 8.38%
- North Dakota: 8.5%
- Utah: 8.6%
- New York: 8.88%
- Georgia: 8.9%
- South Carolina: 9%
- Idaho: 9%
- New Mexico: 9.06%
- Tennessee: 10%
Top FAQs About NJ Vehicle Sales Tax Calculator
Why do I need to learn about other states’ sales tax rates?
If you are considering buying your next vehicle outside your state, it is better to know the sales tax rates of other US states.
If you buy your car from a state with higher sales tax rates than your state’s, you will be at a loss. If you purchase it from a state with rates lower than your state, you will be in profit.
Hawaii and North Carolina car sales tax rates are lower than 4.5% and 3%, respectively.
Meanwhile, states like Arkansas, Colorado, and Louisiana have the highest sales tax rates, over 11%.
So, avoid the pricey ones to save money on your car purchase.
Are documentary fees taxable?
YES. The documentary fees are solely asked by the dealer but are taxable. Documentary fees are labeled as the dealer’s or service expenses necessary to complete the car sale.
Dealers must include all of their charged documentary fees in the sales price as it is mandatory by the law.
Who is considered to be a resident for Sales Tax purposes?
You may need to prove you are a resident of New Jersey state for sales tax purposes.
As per the state of New Jersey, you are a resident if:
- You have a place of living in NJ;
- You are in the US Armed Forces and listed New Jersey as your home or currently reside in New Jersey;
- You have a place of business in New Jersey;
- Do you have any company established under the laws of the state of NJ;
- You are engaged in a business, trade, or employment for which you will use the vehicle in the state.
Are documentary fees required by the state?
No. The document fees are not required by the state. The retailer entirely charges them for preparing all the documents related to your car purchase.
What is an exempt organization?
An exempt organization comprises certain non-profit institutions to which the Division of Taxation has granted exempt status.
Churches, volunteer fire and ambulance companies, rescue squads, and organizations organized & operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes are all considered exempt organizations.
You must register with the New Jersey Division of Taxation to be excused from Sales and Use Tax in New Jersey.
You need to apply for an Exempt Organization Certificate (Form ST-5) and receive it to free yourself or your entity from Sales and Use Tax.
Conclusion
To lawfully own a vehicle, you must pay sales tax on cars in New Jersey. The sales tax is only levied on machinery the state categorizes as motor vehicles.
New Jersey has an average sales tax rate of 6.625%. This rate is affordable compared to the other states charging 11% rates. This article covers everything you need to know about NJ used car sales tax and brand new sales tax.
