When you buy a car in Tennessee, you usually must pay state and local sales tax. The total amount of taxes due depends on where you buy the car and whether or not you have a car to trade in. All new and used vehicle sales at dealerships and between private parties are subject to Tennessee car sales tax. Exceptions are available in several situations, so it's important to learn how car sales tax works in Tennessee.
What Are Tennessee's State, City, and County Sales Tax Rates?
As reported by CarsDirect, Tennessee state sales tax is 7 percent of a vehicle's total purchase price. For example, if you buy a car for $20,000, then you'll pay $1400 in state sales tax. According to It Still Runs, Tennessee cities and counties can charge a local sales tax of up to 2.75 percent on the first $1600 of a car's total purchase price.
City and county sales tax rates vary depending on where you buy a car in Tennessee. If you buy a car for $20,000 in a location with a 2 percent local sales tax rate, then you'll pay an additional $32 in local tax.
What Are Exceptions to Tennessee Sales Tax?
Certain types of car sales or transfers in Tennessee are exempt from local sales tax, such as:
- Sales to members of the armed forces
- Sales or transfers between spouses or siblings, parents, grandparents, children, and grandchildren
- Sales to nonresidents of Tennessee who plan to leave the state with the vehicle within three days of buying it
- Sales to nonprofit organizations or government entities only for organizational or governmental use
- Any vehicles given as gifts
As specified by the Tennessee Department of Revenue, other exceptions to car and boat sales tax include when vehicles are:
- Transferred personally from a sole proprietor's business to the sole proprietor
- Converted by an individual for use at their sole proprietor business
- Owned by two individuals who get the vehicle's title issued in only one of their names
- Given as a gift in which the giver receives no benefit
- Given to a Tennessee qualified nonprofit
- Given to the federal government, the state of Tennessee, a Tennessee county or municipality, or an agency of these governments
How Much Is Sales Tax for a Car in Tennessee?
Sales tax for a car in Tennessee includes a state sales tax, a county or city sales tax, and a single article tax. Your sales tax total depends on if you have a car to trade in, where you buy the car, and if you qualify for any tax exceptions. Car sales tax in Tennessee applies to all road vehicles, whether bought new or used from a private party or a licensed dealer.
There are two ways to calculate the vehicle purchase price in order to apply the 7 percent state sales tax. If you don't have a trade-in, then the purchase price is the amount you agree to pay prior to any rebates or incentives. If you have a trade-in, then the purchase price is the amount remaining after applying your old car's trade-in value to your new car's price. As confirmed by the SalesTaxHandbook, Tennessee doesn't tax the value of your trade-in vehicle.
Local sales tax varies by location. The maximum charge for county or city sales tax in Tennessee is $36 on the first $1600 of a car's purchase price. A single article tax is another state tax to consider when purchasing a car. It's a 2.75 percent sales tax that's applied to the car's purchase price when it's over $1600 but not more than $3200. Single article taxes for purchases over $3200 are capped off at $44 according to the Knox County Clerk's office.
How Much Is Total Sales Tax?
Calculate and then add state and local taxes together to figure out how much you'll pay in total sales tax. Manufacturer rebates and cash incentives from dealerships don't factor in when calculating sales tax. You must pay taxes on the original purchase price of the car. Here is an example of how to find the total sales tax for a car purchase:
- Calculate vehicle purchase price
- Multiply purchase price by 7 percent state sales tax rate
- Multiply the first $1600 by local sales tax rate
- Multiply the next $1600 by 2.75 single article rate
- Add these three tax rates together to find the total sales tax
For a car purchase with no trade-in, your equation would look like this for a $20,000 car and a 2 percent local tax rate: ($20,000 x .07) + ($1600 x .02) + ($1600 x .0275) = $1476.
What Other Fees Should I Expect When Buying a Car in Tennessee?
If you've budgeted the expected car ownership costs, you know there are DMV fees to consider. Tennessee drivers pay an average of $241 for title, registration, and plate fees. Also, some dealerships charge documentation fees, known as doc fees, to cover the cost of preparing and filing sales documents. The cost of doc fees varies, as there are no set regulations in Tennessee. The average cost for doc fees is $495.
In Knox County, the fee for titling and registering your car is $77 for a standard plate. Specialty and commercial tags will cost you more. A $36 Knox County wheel tax may also apply when buying a new plate. The fee for title and transfer of an existing plate is $14.50.
Understanding how Tennessee car sales tax works will help you when buying a new car. It's useful to know when you can save money through tax exceptions. Budget better for your next car purchase when you estimate ahead of time how much Tennessee car sales tax you'll have to pay.
Sources used:
https://itstillruns.com/much-sales-tax-car-tennessee-8285502.html
https://www.carsdirect.com/car-pricing/how-to-calculate-tennessee-car-tax
https://www.salestaxhandbook.com/tennessee/sales-tax-vehicles
https://knoxcounty.org/clerk/motorvehicle/sales_calculator.php
