3 States With the Lowest Car Purchase Taxes
Understanding Car Registration and Taxation Across U.S. States
When it comes to buying a car, many people look for states with low or no sales tax. However, the reality is more complex than it seems. While some states offer attractive tax incentives, there are additional fees and taxes that can significantly impact the total cost of ownership. For example, even if you find a state with zero sales tax, other charges such as DMV fees, title taxes, and registration costs may still apply.
Five states in the U.S. have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. But this doesn’t mean they’re the best options when considering all taxes and fees. In addition to sales tax, there are excise taxes, title taxes, and various administrative fees that can add up. These include DMV fees, document fees, title fees, and registration fees—essentially taxes with different names.
The Complexity of Taxes and Fees
Each state has its own system for calculating these fees, and some cities or counties may impose their own additional charges. For instance, in Alaska, the DMV might charge an extra $10 walk-in fee, while New Hampshire charges $40 for vanity plates. In contrast, Montana offers vanity plates for just $25, making it a popular choice for those looking to save money on personalization.
Delaware is another state where the costs can be quite high. Since May 2024, the state has stopped issuing vanity plates, which means drivers must choose from standard options. This restriction can be both a benefit and a drawback, depending on individual preferences.
In terms of registration fees, the costs vary widely. For example, in Juneau, Alaska, the tax for registering a new non-commercial passenger car is $70, but in Afognak, it jumps to $300. This discrepancy highlights how local taxes can significantly affect the overall cost of vehicle ownership.
Calculating Registration Costs
To understand the differences, let’s consider a hypothetical scenario: purchasing a 2025 BMW 330i with an MSRP of $44,113. If registered in Alaska, the total cost would be around $265, depending on the city. In Oregon, the registration fee is $277, but residents of Multnomah County could pay an additional $112.
Delaware presents a different picture, with a registration cost of $1,969.80 due to a hefty $1,874 document fee. New Hampshire, on the other hand, uses a model-year-based fee system, which can make buying an older vehicle more cost-effective.
Montana: A Popular Choice for Car Owners
Montana stands out for several reasons. It has no sales tax, and the registration fee for the 2025 BMW 330i is only $223.51. Additionally, some counties in Montana do not impose local option taxes, further reducing costs. According to a 2021 report by the Legislative Fiscal Division, certain counties in Montana have a high number of luxury vehicles registered, including a significant number of Pontiacs.
The reason so many exotic cars have Montana plates is that out-of-state owners can avoid sales tax by setting up a limited liability corporation (LLC). By registering a vehicle under an LLC, individuals can take advantage of Montana’s favorable tax environment. However, this practice has drawn scrutiny from neighboring states like California and Utah, which are starting to crack down on such loopholes.
The Rise of Exotic Cars in Montana
Despite the high number of luxury vehicles registered in Montana, it’s rare to see them on the roads. Bloomberg reports that Washington State, which has a much larger population, has zero Paganis or Bugattis registered, while Montana has 31 and 131, respectively. This phenomenon highlights the appeal of Montana’s tax policies, even if the cars aren’t often seen in the state itself.
While some may view the use of these loopholes as a way to save money, others argue that it places a burden on local taxpayers. As neighboring states continue to address these issues, it remains to be seen how long Montana will remain a haven for car enthusiasts seeking tax advantages.
Conclusion
Understanding the full scope of car-related taxes and fees is essential for anyone looking to purchase a vehicle. While some states offer attractive tax incentives, the overall cost of ownership depends on a variety of factors, including local regulations, fees, and the specific vehicle being purchased. Whether you're considering a move to a new state or simply curious about car ownership costs, it's important to research all aspects of the process to make an informed decision.