An excise tax on a car is a tax on the purchase or ownership of a vehicle, separate from sales tax

An excise tax is a per-unit tax the government places on specific goods — in this case, cars. Unlike sales tax, which is a percentage of the purchase price, an excise tax is usually a flat dollar amount per vehicle or a percentage applied at the manufacturer or dealer level before you see the final price. Some states call it a "motor vehicle tax" or "auto tax." The tax exists to fund road maintenance, public transportation, and vehicle regulation.

The federal government does not currently impose a federal excise tax on new passenger cars, though it has in the past and may again. Most excise taxes on vehicles come from state and local governments. A few states have no excise tax at all; others charge it annually based on the vehicle's value or age. Some charge it only at purchase. The amount you pay depends entirely on where you live and, sometimes, what kind of vehicle you own.

Key Takeaways

  • Excise tax on cars is a flat fee or percentage tax separate from sales tax, set by state or local government.
  • Some states charge excise tax only at purchase; others charge it every year based on the vehicle's value or model year.
  • The tax rate and structure vary widely by state — from zero in some states to several hundred dollars annually in others.
  • You typically pay excise tax to the state Department of Motor Vehicles or local tax assessor when you register or renew registration.

How excise tax differs from sales tax and registration fees

Sales tax and excise tax are two separate charges. Sales tax is a percentage of the purchase price and goes to the state general fund. Excise tax is a fixed amount or percentage that usually funds transportation-specific programs. If you buy a $30,000 car in a state with 7% sales tax and a $200 excise tax, you pay $2,100 in sales tax plus $200 in excise tax — they do not overlap.

Registration fees are also separate. When you register your vehicle with the DMV, you pay a registration fee (usually $50 to $200) to get your license plate and maintain your registration. Some states bundle the excise tax into the registration fee; others list them as separate line items on your registration bill. Check your registration paperwork to see what you are paying for.

State-by-state variation in excise tax structure

Excise tax structure varies dramatically. Some states charge a one-time excise tax at purchase. Others charge an annual tax based on the vehicle's age and value. A few charge both. Maine, for example, charges 7% of the vehicle's value at purchase. Vermont charges an annual tax based on the vehicle's model year and type. Washington State charges a 0.3% tax on the purchase price. Some states in the South and Mountain West have no excise tax at all.

Local governments sometimes add their own excise tax on top of the state tax. A city or county may charge an additional $50 to $300 per year. Your total excise tax bill is the state rate plus any local rate that applies to your address. The best way to find your exact rate is to contact your state Department of Motor Vehicles or local tax assessor's office — they can tell you the rate for your vehicle type and location.

When and how you pay excise tax

Timing depends on your state's structure. If your state charges excise tax at purchase, you pay it to the dealer or directly to the DMV when you register the vehicle for the first time. The dealer often collects it and remits it to the state. If your state charges annual excise tax, you pay it every year when you renew your vehicle registration, usually by mail or online through the DMV website.

The bill arrives with your registration renewal notice. You cannot register your vehicle without paying the excise tax — the DMV will not issue plates or a registration sticker until the tax is paid. Payment methods vary by state but usually include check, money order, credit card, or online payment through the DMV portal. Some states allow you to pay in installments if the annual amount is high.

Excise tax on electric and hybrid vehicles

Several states offer reduced or zero excise tax on electric vehicles (EVs) and plug-in hybrids as an incentive to buy cleaner cars. Colorado, for example, exempts EVs from sales tax. Vermont offers a rebate on excise tax for EVs. Other states charge the full excise tax regardless of fuel type. A few states have begun phasing out EV exemptions as more people buy electric cars and states need the revenue.

If you are considering an EV purchase, check your state's current EV tax treatment before you buy. The rules change frequently, and a tax break available this year may not be available next year. Your state DMV website or the state revenue department will have the current rules. Some dealers also know the rules and can tell you what you will owe at registration.

How excise tax revenue is used

Excise tax revenue funds state and local transportation programs. Money typically goes to road repair and maintenance, public transit systems, highway safety programs, and vehicle inspection and regulation. Some states dedicate excise tax revenue to specific programs — for example, a state might direct all EV excise tax revenue to charging station infrastructure. The exact use depends on state law and the current budget.

Unlike general sales tax, which goes into a broad state fund, excise tax is usually earmarked for transportation. This means the tax is theoretically tied to the cost of maintaining the roads and systems that vehicles use. In practice, the amount collected often does not match the amount spent on transportation, and states adjust rates or structure based on budget needs.

Frequently Asked Questions

Do I have to pay excise tax if I buy a used car?

It depends on your state. Some states charge excise tax only on new vehicles. Others charge it on all vehicles, including used ones, either at purchase or annually. A few states charge excise tax only on vehicles over a certain age. Check your state DMV website or call your local tax assessor to find out the rule for used vehicles in your state.

Can I deduct excise tax on my income tax return?

No. Excise tax is not deductible on your federal income tax return. State and local taxes (SALT) on vehicles are sometimes deductible on state income tax returns, but the rules vary by state. Consult a tax professional or your state revenue department for your specific situation.

What happens if I do not pay the excise tax?

You cannot register or renew your vehicle registration without paying. The DMV will not issue plates or a registration sticker. If you owe back excise taxes, you may face penalties and interest. Some states place a lien on the vehicle. Contact your state DMV if you have unpaid excise taxes to learn about payment plans or hardship options.

Is excise tax the same as a gas tax?

No. Gas tax is a per-gallon tax on fuel at the pump. Excise tax is a tax on the vehicle itself, charged at purchase or annually. Both fund transportation, but they are separate taxes collected at different points.