Owning a vehicle is expensive from the day you purchase it until the day you quit driving it. Unfortunately, when you purchase a vehicle, you're paying for much more than just the vehicle itself. In addition to your down payment and monthly payments, you'll need to budget for dealer fees, registration fees, gas, insurance, and sales tax. Some states are better to buy cars in than others due to lower initial costs, less unexpected fees, and lower car insurance premiums.
Sales tax is charged on car purchases in most states in the U.S. While you may be used to paying sales tax for most of your purchases, the bill for sales tax on a vehicle can be shocking. If, for example, you pay a 10% sales tax on $20,000, that's an additional $2,000 you must spend – not counting doc fees and DMV fees.
Two states have car sales tax rates below 5%: North Carolina and Hawaii, at 3% and 4.5%, respectively. However, on the opposite end is Oklahoma, which has the highest car sales tax at 11.50%, followed by Louisiana with 11.45%. This means that a $20,000 vehicle in Oklahoma would cost an additional $2,300. Arkansas, Colorado, Arizona, Illinois, and Alabama all have car sales tax rates of at least 11%.
Unfortunately, if you live close to a state with a lower or no car sales tax, such as if you live near Delaware, you cannot buy a car in that state to avoid sales tax. You must pay the sales tax rate of the state the car will be registered in, which is the state you reside in.