Individuals who purchase a vehicle in Massachusetts are typically required to pay sales tax within 10 days of the purchase or transfer of the vehicle. This tax must be paid to the Registry of Motor Vehicles. While the state uses a flat tax rate, it may take some time and research to determine the value of the vehicle that the tax is based on.
Step 1: Account for a Trade-In
Subtract the amount you received in credit for your old vehicle's trade-in, if applicable. Look for this figure on the bill of sale that you received from the dealership or private party.
Step 2: Deduct Discounts and Rebates
Subtract any dealer discount or manufacturer rebate that you received at the time of purchase to reduce the amount of sales tax you will pay. This figure gives you the net purchase price. If you received a rebate after the sale, this deduction does not apply.
Step 3: Determine Vehicle's Value
If you purchased the vehicle from a dealership that is registered with the state's Department of Revenue, the net purchase price is the value of the vehicle.
However, if you purchased the vehicle from a dealership or seller not registered with the Massachusetts Department of Revenue, you must compute the vehicle's value according to the National Automobile Dealer's Association. Go to the NADA website and enter the information about the vehicle you purchased to get a clean trade-in value. The value is adjusted up or down, based on mileage. The value that you use to determine sales tax is the higher of either the net purchase price or the NADA value. This safeguard helps prevent dealers from using an artificially low sales price on the bill of sale to fraudulently reduce the amount of taxes owed.
If no clean trade-in value is available through the NADA, the Massachusetts Registry of Motor Vehicles and the Department of Revenue agree on a default value that you use to compute sales tax.
Step 4: Multiply by State Tax Rate
Multiply the net purchase price or NADA value by the state's sales tax rate. At the time of publication, the state sales tax rate was 6.25 percent.
In special circumstances, sales tax is not charged on the purchase of a vehicle. For example, sales tax may not be due when a vehicle is transferred to a family member (including a same-sex spouse), disabled person, tax-exempt organization or business entity. Also, a person can gift a vehicle to another person or entity without the requirement for sales tax, provided that no money was exchanged, the transaction was considered a gift and no debt was transferred to the recipient.
Non-residents of Massachusetts who buy a vehicle in Massachusetts are required to pay the same amount of sales tax as residents, even though they do not have to register the vehicle in the state. A Massachusetts resident who buys a vehicle in another state has to pay Massachusetts sales tax unless he paid sales tax in the other state.