How Does Sales Tax Work on a New Car Purchase?
Just like going to the store and seeing a line item for sales tax on your receipt, buying a new car in Arizona triggers a tax that is due at the time of the transaction. In Arizona, the sales tax on a new car purchase is 5.6%. That means that, were you to buy a $10,000 used car, you would pay $560 in sales tax.
How Does Trading a Car Impact Sales Tax Liability?
Here’s the short answer: trading in a car can helpreduce what you pay in sales tax liability. This is because you’ll only pay tax on the difference between the price of your new car and the value of your trade-in.
What does this look like in practice? Say you buy a new car for $25,000, and the car you want to trade in is worth $10,000. In this scenario, you will only pay tax on the difference between your trade-in value and new car purchase price, which in this example is $15,000.
The actual dollar value of this policy can be significant. To take the math in our example a step further, a 5.6% surcharge on $25,000 -- the sales tax you would be charged without a trade-in -- translates to $1,400. With the trade-in sales tax incentive, you only pay the 5.6% tax on the $15,000 difference between the purchase price and trade-in value, which in this case is $840. That’s a nearly $600 reduction in your tax liability simply by trading in your car.
Trade In a Car in Prescott, AZ
There are several other benefits to trading in vs. selling a car as well, including a far more simplified upgrade process that doesn’t require the time, hassle and frustration of arranging a private sale. If you’re ready to buy a new Outback or trade up to a Crosstrek and want to take advantage of this enticing tax strategy, just contact Findlay Subaru Prescott and let our team help. We’re here to get you the most we can for your trade-in -- and save you a few dollars in sales tax in the process.