Auto excise tax is a per-unit tax on new vehicles, added at the point of sale
An auto excise tax is a tax imposed on the manufacturer or importer of a new vehicle, calculated as a percentage of the vehicle's price or as a flat amount per vehicle. The tax is built into the price you pay at the dealership — you do not pay it separately. The federal government does not currently impose a federal auto excise tax on passenger vehicles, but some states and localities do, and the tax structure varies significantly by location.
The tax is different from sales tax. Sales tax applies to most goods and services and is calculated on the total purchase price. An auto excise tax, by contrast, is a specific tax on vehicles themselves, often designed to discourage consumption of certain vehicle types or to fund transportation infrastructure. Some states use excise tax to target high-value vehicles or vehicles with poor fuel economy.
The amount you pay depends on where you buy the vehicle, the vehicle's price or specifications, and whether your state or locality has an auto excise tax in place. A few states have no auto excise tax at all. Others tax all new vehicles at a flat rate. Still others tax based on the vehicle's value, engine size, or fuel efficiency.
Key Takeaways
- Auto excise tax is a tax on new vehicles paid at the point of sale and included in the price you pay, not a separate charge at checkout.
- The federal government does not impose an auto excise tax on passenger vehicles, but individual states and some localities may.
- The tax rate and structure depend on your state or locality and may be based on the vehicle's price, weight, engine size, or fuel economy.
- You cannot avoid auto excise tax by purchasing in a different state; the tax is based on where the vehicle is registered or titled, not where it is purchased.
How auto excise tax differs from sales tax and registration fees
Sales tax and auto excise tax are separate charges, though both appear on your purchase paperwork. Sales tax is a general tax on the sale of goods and is calculated as a percentage of the total purchase price. An auto excise tax, if your state has one, is a specific tax on vehicles and may be calculated differently — sometimes as a percentage of value, sometimes as a flat fee, sometimes based on the vehicle's characteristics.
Registration fees are also separate. When you register a vehicle with your state's Department of Motor Vehicles, you pay a registration fee to obtain license plates and proof of registration. This fee funds state vehicle administration and may vary based on the vehicle's age, weight, or value. Registration fees are annual or multi-year charges; excise tax is a one-time tax at purchase.
On a typical new vehicle purchase, you might see all three: the vehicle price, plus sales tax, plus auto excise tax (if applicable), plus registration fees. Your dealer's paperwork will itemize these separately so you can see what each one costs.
Which states have auto excise tax and how much it costs
Auto excise tax structures vary widely by state. Some states have no auto excise tax on new passenger vehicles. Others impose a tax on all new vehicles. Still others target specific vehicle types — for example, some states tax luxury vehicles at a higher rate, or tax vehicles based on fuel economy or engine displacement.
The rate and structure depend on the state. Some states charge a flat dollar amount per vehicle. Others charge a percentage of the vehicle's sale price. A few states use a tiered system based on the vehicle's value or weight. Because these rules change and vary by locality within some states, the best way to find out what you will pay is to contact your state's Department of Motor Vehicles or Department of Revenue directly, or to ask your dealer what excise tax applies to your purchase.
If you are buying a vehicle in one state but registering it in another, the excise tax is based on the state where you register the vehicle, not where you purchase it. This means you cannot avoid state excise tax by buying out of state.
When you pay auto excise tax and how it appears on your bill
Auto excise tax is paid at the point of sale. The dealer collects it as part of the total amount due and remits it to the state or locality. You do not write a separate check for excise tax; it is included in the final price on your purchase agreement and bill of sale.
On your paperwork, the excise tax should be listed as a separate line item so you can see exactly what you are paying for. The bill of sale or purchase agreement will show the vehicle price, then add sales tax, excise tax, registration fees, and any dealer fees. The total of all these is what you owe at signing.
If you are financing the vehicle, the excise tax is typically included in the amount financed, so you pay it over time as part of your loan. If you are paying cash, you pay it upfront along with the vehicle price and other taxes and fees.
How auto excise tax affects the total cost of vehicle ownership
Auto excise tax increases the upfront cost of buying a new vehicle. Depending on your state and the vehicle's price or type, this can add hundreds or even thousands of dollars to what you pay at purchase. For a $30,000 vehicle in a state with a 5 percent excise tax, for example, the excise tax alone would be $1,500.
This upfront cost is separate from ongoing costs like insurance, maintenance, fuel, and annual registration fees. However, because excise tax is a one-time charge at purchase, it does not affect the cost of owning the vehicle after you buy it. Used vehicles are typically not subject to auto excise tax, which is one reason used vehicle prices may be lower than new vehicle prices in states with auto excise tax.
If you are considering whether to buy new or used, or whether to buy in your home state or elsewhere, understanding your state's excise tax structure can help you estimate the true cost of purchase. Dealers can provide an estimate of excise tax before you sign paperwork.
Frequently Asked Questions
Can I avoid auto excise tax by buying a used vehicle?
Yes. Auto excise tax applies only to new vehicles. Used vehicles are not subject to excise tax, though they are subject to sales tax and registration fees. This is one reason used vehicles cost less than new ones in states with auto excise tax.
What if I buy a vehicle in a state with no excise tax and register it in a state that has one?
You will owe excise tax based on the state where you register the vehicle, not where you purchase it. The tax is assessed when you title and register the vehicle with your home state's Department of Motor Vehicles.
Is auto excise tax the same as a luxury tax?
Not always. A luxury tax is a type of excise tax that targets high-value vehicles. Some states have a general auto excise tax that applies to all new vehicles. Others have a luxury tax that applies only to vehicles above a certain price. Check your state's rules to see which applies to you.
Can I deduct auto excise tax on my federal income tax return?
No. Auto excise tax paid at purchase is not deductible on your federal income tax return. Sales tax on vehicle purchases may be deductible in some cases, but rules vary and change. Consult a tax professional for your specific situation.