Are you planning to buy a car in Alabama? Or are you an out-of-state driver who wishes to register your car in Yellowhammer State? There are many costs associated with your purchase, like title, registration, plate, and even car sales tax. Most importantly, how much is the Alabama car sales tax?
The state has a fixed rate, but the exact rate depends on the area of your residence. You’ll have to pay the county or local tax rates too. So, when planning the car buying budget, knowing the Alabama sales tax on cars is vital. Don’t worry; our article covers every aspect you wish to know!
How much is the sales tax on a car in Alabama?
Whether buying a new or used car, you must pay a base Alabama car sales tax rate of 2%. But the correct rate you pay depends on the county and local taxes. Local taxes can be around 3.5% and Alabama’s average total car sales tax ranges between 3.375%–4%.
Residents in Arab need to pay 0.5% extra tax as Marshall County has zero tax. However, residents in Foley pay around 1.25% in Baldwin County taxes in addition to Foley’s 0.50% locality tax. So, the total tax rate changes drastically with your area.
Does trade-in reduce sales tax on cars in Alabama?
Yes. As dealerships accept trade-ins, you’ll have a lower sales tax rate applied to the new car you’re purchasing – even if it’s very costly. For instance, if you’re trading in your old car and get a credit of $5,000 against the buying price of $15,000 for your new car. So ideally, you’ll have to pay around $10,000 from your wallet.
As the value of your trade-in isn’t taxable, the taxable value of your new car will be $10,000. So you save the sales taxes you would’ve paid on the $5,000 credit otherwise.
How are rebates and incentives taxed?
Many dealers offer financial incentives or manufacturer discounts on a car’s sticker price. If the dealer offers a $1,000 cash refund on a $15,000 car, you’ll only have to pay $14,000 from your wallet. The state taxes car purchases before applying the rebates or incentives. So, you will pay taxes on the car as if it costs the full $15,000.
Do you pay sales tax on a used car in Alabama?
Yes. The Alabama car sales tax rate of 2% applies to used and new cars. When a used car is taken in trade as a credit or partial payment on selling a new or used car, you pay the sales tax based on the net difference.
How much is auto insurance in Alabama? We have got the info!
What other fees must you pay while buying a car in Alabama?
You’ll incur these additional fees while buying a car in the state.
- Title – $18
- Plate – $1.25
- Registration – Between $15-23 and $50 annually
- Documentation fee – $485
Documentation fee covers the dealership’s costs in creating and filing the sales contract, sales tax forms, etc. Since dealerships fix this fee, it can vary based on the dealership and even between car models.
Does Alabama collect sales tax on out-of-state car purchases?
Yes. the state charges a 2% tax on all vehicle purchases, including off-road bikes and ATVs. The total sales tax due, including county and local taxes, will be between 3.375% and 4% of the car’s buying price.
Do you have to pay taxes on a gifted car in Alabama?
No. The state law prohibits collecting sales tax on a car you receive as a gift.
Know in detail how to get a driver’s license in Alabama
Can you sell a car for $1 in Alabama?
Yes. However, while selling a car for $1 allows you to evade capital gains and gifts taxes, the recipient of the car has to pay whatever sales tax the state charges on used cars when they transfer the title.
What is the sales tax on cars in Jefferson County, Alabama?
It is 6%, including the state and county tax rates.
When you’re exempt from paying Alabama car sales tax?
You must pay a tax rate when you buy a car in the state. However, there are exemptions in some cases. If you are entitled to an exemption, you must apply for a Certificate of Exemption, which allows you to make tax-free purchases. The following are a few you can get.
- Non-profit organizations
- Charitable organizations
- If the sale happens outside of the city or county in which a dealership is located
For more details, visit the website of My Alabama Taxes.
Way.com is the final destination for car service requirements. Discover the best deals on parking spots, get cheap home and auto insurance, and refinancing quotes. Find the nearest car wash and EV charging station with just a few clicks. Plus, enjoy exclusive gas discounts that will keep you moving.
