Use Taxes and Cars

One of the advantages of buying goods on-line is that you are generally not charged sales tax if the business you’re buying from doesn’t have a physical presence in your state. That can be a significant savings, as sales tax rates of 6% or higher are common in many states.

Tennessee, where we’re visiting this weekend, has the highest rate in the nation of 9.45% (there is no income tax, which is why the sales tax is so high and why my tax-phobic in-laws relocated there) so shopping on-line can save just short of 10% in that case, more than enough to justify the cost of shipping the product in question.

However, states are loathe to give up that revenue and will generally have an use tax on goods bought in another state. For mundane household items like computers or books, citizens are supposed to pay the use tax as part of their income tax form each year, but since out-of-state businesses don’t have to provide the state with a list of their customers, it’s hard for states to keep taxpayers honest on use taxes.

Cars and other vehicles are an exception. When you go to get your title and plates for your four wheels of joy, one of the bullet points on the title form will typically be a spot for sales or use tax; if you paid tax elsewhere, you’re all set, but if you didn’t pay any sales tax on your vehicle, you’ll have to pay the use tax before you can get your car street-legal.

There are a number of reasons to buy cars on-line or otherwise out-of-state, but avoiding sales taxes isn’t one of them. You might conveniently forget to let Uncle Steve know about your new Dell laptop, but he’ll find out about the car and charge you the use tax.