Use Tax
Use tax is a government-imposed tax that applies when a vehicle is purchased outside a buyer’s home state but is brought in and registered locally. Its purpose is to ensure that state governments receive revenue from vehicle ownership, even when sales tax was not collected at the point of purchase.
The use tax rate is generally the same as the state’s sales tax rate and is collected by the DMV during registration. If the buyer has already paid sales tax in another state, many jurisdictions allow credit toward the use tax, though buyers may still owe the difference if their home state’s rate is higher.
Use tax prevents consumers from avoiding sales tax by purchasing vehicles in low-tax states and registering them elsewhere. Understanding use tax obligations is essential for buyers who purchase cars across state lines, whether from private parties or dealerships.
Example
Ben buys a truck in a neighboring state with 4% sales tax and registers it in his home state, which has a 7% tax rate. He receives credit for the 4% already paid but owes an additional 3% in use tax at registration.