Do You Pay Double Taxes if You Buy a Car Out of State
You pay sales tax once, to the state where you register the car, not to both states.
No, you don't pay twice
Most states give you credit for any sales tax you already paid in the state where you bought the car, so you don't pay the full tax rate twice on the same purchase. You settle up the difference, if there is one, when you register the car in your home state.
How this works depends on which two states are involved. Some states have agreements with each other that handle this smoothly. Others don't, and a few states charge no sales tax on vehicles at all, which changes the math. Check with your state's DMV or tax agency before you buy, not after.
Which state you register in is what matters
The tax you owe is almost always based on where you register and title the car, which for most people is their home state, regardless of where they bought it. The dealer or seller's state usually isn't who collects your main tax bill.
If you buy from a dealer out of state, many dealers will collect your home state's tax at the time of sale and handle the paperwork for you, since they're set up to do this across state lines. If you buy from a private seller out of state, you're more likely to pay the tax yourself when you register the car back home.
Either way, ask the seller directly how they handle the tax on an out of state sale before you sign anything. If they're not sure, that's a sign to call your own state's DMV or tax office and ask what you'll owe and when.
Your home state will usually subtract whatever tax you already paid to the other state, so you're not charged twice on the same amount. If the other state's tax rate was lower than yours, you typically owe the difference. If it was higher, some states refund the difference and some don't.
What catches people off guard
People sometimes think that because they paid tax once at the point of sale, they're done. Then a registration bill arrives from their home state asking for more. That's not a second tax on the same thing. It's usually the gap between what you paid and what your home state charges.
Another thing that trips people up is assuming every state handles the credit the same way. They don't. Some require proof of the tax you already paid, like a bill of sale or receipt showing the amount. Keep that paperwork. Without it, your home state may not know to credit what you paid and could ask for the full amount.
If you move to a new state soon after buying a car, a similar question comes up, what tax you owe on a car you already own. That's a separate situation from buying out of state, and the rules for it are different, so don't assume the same answer applies.
Questions people ask about this
Do I pay sales tax in the state I bought the car or the state I live in?
You generally pay based on the state where you register the car, which is usually your home state. The state where you bought it may still collect tax at the time of sale, especially if it's a dealer, but that amount typically gets credited against what your home state charges.
What paperwork do I need to avoid paying tax twice on a car?
Keep the bill of sale or purchase agreement showing the sales tax you already paid. Your home state's DMV or tax office will likely ask for this to calculate the credit, so bring it when you register the car.
Does buying a car in a state with no sales tax save me money?
Not usually, because your home state will typically still charge its own sales tax when you register the car there. The savings would only apply if you were also registering the car in that no-tax state, which most out of state buyers aren't doing.
Do I need car insurance before I can register an out of state car purchase?
Most states require proof of insurance before they'll complete registration, regardless of where you bought the car. Check with your state's DMV for exactly what they need to see, since the requirements vary.
What if the two states have different sales tax rates?
Your home state usually credits what you paid in the other state and charges you the difference if its rate is higher. If the other state's rate was higher, whether you get money back depends on your state's rules, so ask your DMV or tax office directly.
Once you know where you're registering the car, it's worth comparing insurance before you drive it home.
Before you buy, call your home state's DMV or tax office and ask exactly how they handle sales tax credit for an out of state purchase. Ask what paperwork they'll need, usually the bill of sale showing the tax you paid. If you're buying from a dealer, ask them directly whether they'll collect your home state's tax at the time of sale or whether you'll handle it at registration. Keep every receipt from the purchase until the car is fully registered in your name. If you're moving the car to a new state soon after buying it, ask about that separately, since the rules for a recent move can differ from a straightforward out of state purchase.
