How are Car Sales Taxed in Texas?
Thinking about buying or selling a car in Texas? You might want to acquaint yourself with Texas car sales tax rules for 2022.
Car sales represent the second largest purchase made by individuals throughout the state of Texas, and if you think big government doesn’t want a piece of that pie, you’d be sadly mistaken.
Given the monetary size of the transaction, car sales in the state often result in a significant tax bill…one that you likely want to be aware of prior to making a purchase.
In this guide, we’ll cover everything you need to know about Texas Car Sales Tax in 2022.
What are Texas Car Taxes Based On?
Much of the confusion surrounding car sales taxes in the state of Texas stems from the fact that the amount of tax you can expect to pay will vary (sometimes significantly) depending on the county and/or city you live in.
2022 Sales and Use Tax Rates in Texas
The state of Texas imposes several types of motor vehicle taxes on its motorists. Below we break those taxes are calculated for you.
Texas Sales Tax
This is a big one. As stated by the Texas Department of Motor Vehicles, any individual who purchases a vehicle within the state’s borders owes sales tax on that purchase. The current state tax for cars (subject to change) sits at 6.25%, imposed on the final sales price of the car.
This tax is due to your local county’s tax assessor (or collector’s) office. It can be made payable by sending a copy of the Registration Form and/or the Application for Texas Title. More information on this process can be found on the Texas Comptroller Website.
Texas Use Tax
Both new and established Texas residents are required by the Texas Comptroller to pay a ‘use tax’ that is imposed on the total of the sales tax for the vehicle transaction. The use tax rate for the sale of a car in Texas is currently 6.25% of the price of the car for the 2023 calendar year. Again, this is subject to change year to year. For example, if your sales tax amounted to $100, you would owe 6.25% of that in use tax (i.e. $6.25).
New Resident Tax
For those individuals who are new residents, and bring a car to Texas from another state (or even another country), a ‘new resident tax’ is owed. This fee is made in place of the use tax, and the price is currently $90 for 2022.
City and County Taxes
If you thought you were done with paying Texas car sales tax, think again. Each county and city within that county, charges their own taxes on transactions that take place within their borders or for residents who reside there.
Unfortunately, there is no easy way to list the taxes and fees for every city and county in the state of Texas (at least without making a mess of things). The best course of action to determine how much you may owe is to visit your local tax assessor’s website for your relevant city and county.
DMV Fees In Texas: an added cost
Although not necessarily a ‘tax’, Texas DMV fees are often an overlooked expense related to Texas car sales; a big mistake, given that they add up fast. On average the total fees one can expect to pay the DMV in Texas for a new car purchase is around $850.
This total includes:
- License plate fees
- Title and registration
If buying from a dealership, note that some dealers add on an additional ‘doc fee’ meant to cover expenses pertaining to the preparation and filing of sales contracts, sales tax documentation, and other related paperwork. Given that these are imposed by an independent third party, they are not regulated by Texas law and may vary significantly from one dealer to the next. On average we’ve found the price of these fees to be around $140.
As we go through this guide on the expenses associated with buying a car, we’d be remiss if we didn’t talk about Houston, Texas auto insurance. Not only does the state of Texas Department of Motor Vehicles require a mandatory minimum amount of coverage, but budgeting for the right type of coverage can also ensure you, your passengers, and your family are financially covered in the event of an accident.
Calculating Sales Tax: Standard Presumptive Models
If you purchased your car from a private party, and not a dealer, you’ll have to do a little math to calculate your own sales tax rate. Unfortunately, it’s not quite as easy as just multiplying 6.25% by the final sales price.
Known as Standard Presumptive Value (SPV), this figure is what the Texas Department of Motor Vehicles uses to estimate the vehicle’s worth based on similar sales made in the state. Luckily, the state does make this a bit easier by providing an SPV calculator on the Department of Motor Vehicle’s website.
All you’ll need to enter is the VIN number (vehicle identification number) and the odometer reading at the time of sale.
But What if You Paid LESS Than the Standard Presumptive Value?
In such cases, you would be qualified to pay a lower price. If you paid less than the SPV for the vehicle, your sales tax on the transaction must be calculated based on a certified appraisal amount for the car.
TIP: This appraisal must be conducted by a licensed insurance adjuster or motor vehicle dealer within 20-days of the purchase.
What Types of Vehicles Aren’t Subject to the Standard Presumptive Model?
- Those vehicles which were part of a trade or ‘swap’ for another vehicle of equal value
- Any motor vehicle that is given as a gift
- Any vehicle sold by a mechanic or storage facility
- Transactions on a salvage or an abandoned vehicle
- Any ‘off road’ vehicle, including dirt bikes and ATVs
- Any vehicle that is 25 or more years old
- Any vehicle purchased as part of a governmental auction
- Any vehicle purchased as part of a foreclosure
- Vehicles purchased from a licensed auto dealer
- Brand new vehicles
How Are Trade-ins Taxed?
Trading in your old vehicle when purchasing a new one is a common practice at dealerships, with the trade in value being applied as credit towards your new purchase. Luckily, in Texas, the value of your trade in is not subject to any sales tax.
How Are Dealer Incentives and Rebates Taxed?
Dealers are well-known for using incentives and rebates as marketing tactics to draw in new buyers. In Texas, sales tax is imposed on the transaction value AFTER any rebates or incentives have been applied. In other words, you only pay sales taxes on the final cost to you, after rebate and incentives.
Final Thoughts on Texas Car Sales Tax for 2022
This last year has left a lot of people feeling the pinch. Whether you’re in a better or worse position than the year prior, no one likes a surprise tax bill. By following the tips in this guide, you can properly account for what to budget, and avoid costly pitfalls, fines and fees in the event you miscalculated or failed to pay the price of the tax altogether.
Going to read more about Texas? Read our Ultimate Guide on How to Sell a Car in Texas.