I'm looking at a used Prius and the dealer says that I only have to pay sales tax (MA: 6.25%) over the net price I'm paying (price of prius minus trade-in value). I've read in other forums and blogs that this is common in many states. The dealer said: "Of course, you've already paid the sales tax on your old vehicle!" I now wonder why this is and if this also applies if I sell the car to a private party? (I guess not, but the rule " you've already paid the sales tax on your old vehicle" still applies). What law justifies that it is possible at a dealer but not at home? thanks for sharing any thoughts on this,
It IS a technicality, but the 'logic' is that a trade-in ought not trigger a tax since it is not a cash transaction. Taxes by nature distort economic behavior, and natural laws need not be applied. For example, it makes as much sense as the buyers of 60000 toyota hybrids getting a credit, but then it phases to nothing for later buyers of the same vehicle. Or the fact that I can get a credit for insulating my home, but not the homes I rent out to others.
Your state is sometimes referred to as Taxachusetts, but it's great that you receive that break on sales tax with a trade-in. That certainly is not the case in CA, you must pay sales tax on the full value of the vehicle; while the tax rate is ~8%+ depending on locale. Regarding your sale to a private party, the correct analogy would be if you and another individual were to trade cars and the party receiving the higher-valued car paid the difference. Suppose your current car was worth $10K and you traded the car plus a $15K payment to a private party, receiving a car worth $25K. When you visit your local DMV to register your car, would you pay use tax on $25K, or on $15K?
What Fees Should You Pay? has a table which lists which states have and don't have this. WA state is like yours but CA is not. :/
