Excise tax on cars is a per-unit tax on the sale or ownership of a vehicle, separate from sales tax

An excise tax on cars is a tax applied to the purchase or ownership of a motor vehicle. Unlike sales tax, which is a percentage of the purchase price, excise tax is usually a flat dollar amount per vehicle or a percentage applied to a specific category of cars. The federal government and individual states each set their own excise tax rules, so the amount you pay depends on where you buy the car and what type of vehicle it is.

Excise taxes exist because they target specific goods the government wants to discourage or regulate — in this case, motor vehicles. The revenue collected typically funds transportation infrastructure, environmental programs, or general state budgets. You pay excise tax at the time of purchase or registration, depending on your state's rules.

Key Takeaways

  • Federal excise tax on cars applies to certain vehicle types like gas guzzlers and luxury vehicles, but most standard cars are not subject to federal excise tax.
  • State excise taxes vary widely: some states charge a flat fee per vehicle, others charge a percentage of the purchase price, and some charge nothing at all.
  • Excise tax is separate from sales tax and is usually paid at the time of purchase or vehicle registration.
  • The amount you owe depends on the vehicle type, purchase price, and your state's specific tax structure.

Federal excise tax on vehicles

The federal government does not tax most car purchases. However, it does impose excise tax on certain categories of vehicles. The most common federal excise tax applies to gas guzzler vehicles — cars that get poor fuel economy. The tax ranges from $1,000 to $7,700 per vehicle, depending on how low the fuel economy rating is. A car that gets 12.5 miles per gallon or worse will trigger this tax.

A second federal excise tax applies to luxury vehicles costing over a certain threshold. This tax was reinstated in 2023 and applies to new cars priced above $55,000, trucks and vans above $60,000, and motorcycles above $30,000. The tax rate is 10 percent of the amount over the threshold. For example, a car priced at $60,000 would owe tax on the $5,000 above the $55,000 threshold.

Most standard sedans, compact cars, and mid-range vehicles do not trigger federal excise tax. You only pay it if your vehicle falls into one of these two categories.

State excise taxes on cars

State excise taxes are far more common than federal ones, and the structure varies dramatically from state to state. Some states charge a flat annual fee for vehicle registration that functions as an excise tax. Others charge a percentage of the vehicle's purchase price or assessed value. A handful of states do not charge excise tax on vehicles at all.

States that use a percentage-based system typically charge between 1 and 4 percent of the purchase price or fair market value of the car. States that use a flat fee system might charge anywhere from $25 to $500 per year, depending on the vehicle type, age, and weight. Some states adjust the fee based on whether the vehicle is new or used, or whether it is a passenger car, truck, or motorcycle.

A few states — including Montana, New Hampshire, and Oregon — do not impose a general excise tax on vehicle purchases, though they may charge registration fees or other vehicle-related taxes. You need to check your specific state's rules to know what you will owe.

When you pay excise tax

In most states, you pay excise tax at the time of vehicle registration or at the time of purchase, depending on state law. Some states collect it when you first register the vehicle with the Department of Motor Vehicles. Others collect it at the dealership or through the sales tax system. A few states collect it annually as part of vehicle registration renewal.

The timing matters because it affects when the money leaves your pocket. If your state collects excise tax at purchase, you will pay it upfront along with sales tax and other fees. If your state collects it at registration, you may pay it weeks or months after you buy the car. If it is an annual fee, you pay it every year you own the vehicle.

How excise tax differs from sales tax

Sales tax and excise tax are two separate charges, and it is important to understand the difference. Sales tax is a percentage of the total purchase price and applies to most goods, not just cars. Excise tax is a per-unit tax on specific items the government wants to regulate or discourage. You pay both on a car purchase in most states.

For example, if you buy a car for $30,000 in a state with 7 percent sales tax and a 2 percent excise tax on vehicle purchases, you would owe $2,100 in sales tax (7 percent of $30,000) and $600 in excise tax (2 percent of $30,000). These are separate line items on your bill, not combined into one number.

Some states do not separate the two clearly on paperwork, so the total tax you see might combine sales tax, excise tax, registration fees, and other charges. Ask the dealership or your state's DMV to break down the charges so you know what each one covers.

Excise tax on used cars

Whether you pay excise tax on a used car depends on your state's rules. Some states charge excise tax on all vehicle purchases, whether new or used. Others charge it only on new vehicles. A third group charges it based on the vehicle's assessed value or age, which means used cars may be taxed at a lower rate than new ones.

A few states charge an annual excise tax on vehicle ownership rather than a one-time purchase tax. In those cases, you pay the tax every year you register the vehicle, regardless of whether it is new or used. The amount may decrease as the vehicle ages.

Check your state's DMV website or contact them directly to find out whether used cars are subject to excise tax and at what rate.

Frequently Asked Questions

Do I have to pay federal excise tax on my car?

Only if your car is a gas guzzler (gets 12.5 mpg or worse) or a luxury vehicle over the price threshold ($55,000 for cars, $60,000 for trucks, $30,000 for motorcycles). Most standard vehicles do not trigger federal excise tax. Check your vehicle's fuel economy rating and purchase price to determine if you owe it.

Can I get a refund on excise tax I already paid?

Refunds depend on your state's rules and the reason you are requesting one. Some states offer refunds if you move out of state or sell the vehicle within a certain timeframe. Contact your state's DMV or tax authority to learn what refund options exist in your location.

Is excise tax the same in every state?

No. Each state sets its own excise tax rate, structure, and rules. Some states charge a percentage of purchase price, others charge a flat fee, and some charge nothing. You need to check your specific state's rules to know what you owe.

Why do some cars cost more in excise tax than others?

The amount depends on the vehicle type, purchase price, fuel economy, and your state's tax structure. Gas guzzlers and luxury vehicles pay federal excise tax. In states with percentage-based excise taxes, more expensive cars generate higher tax bills. In states with flat fees, the amount may vary by vehicle category or weight.