If you're getting a car in Tennessee, you might worry about having to pay state and local sales tax on top of the other costs associated with purchasing and registering vehicles in the state. Whether you can transfer the title without paying taxes will depend on if someone has gifted you the vehicle or if the seller has a close relation to you. Gifting a car in Tennessee allows the new owner to avoid vehicle sales tax, but this means you will have needed to have obtained the car without payment. If you're buying the car normally, you may still be able to avoid vehicle sales tax in limited situations.
Tennessee Vehicle Title Transfer Taxes
Whenever you have a vehicle sales transaction, Tennessee typically charges a state vehicle sales tax on top of any local sales tax and additional article tax. As of publication, the state tax is 7 percent of the purchase price. The county charges 2.25 percent, up to a max of $36. However, if the vehicle costs more than $1,600, you'll pay 2.75 percent in additional article tax on the excess amount, up to $44.
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Avoiding Paying Vehicle Transfer Tax
The good news is that you can have these taxes waived in some specific circumstances that could apply to you.
For example, you can avoid the tax if your spouse, parent, grandparent, sibling or another close relative sold you the vehicle. This also applies to lineal relatives' spouses. On the other hand, if a car dealer, friend or another unrelated person sells you the car, you don't qualify for an exemption on the vehicle sales tax.
In a case where someone gave you the vehicle without requiring any payment, you can also avoid paying sales taxes since the transfer is considered a gift. However, the person who gave you the car might have to pay a gift tax depending on whether the car's current fair market value surpasses $15,000 as of 2020.
Handling Tax-Exempt Vehicle Transfers
If the car title transfer falls under one of the conditions in which Tennessee exempts vehicle sales taxes, then you'll need to follow a specific process to complete the transaction. Regardless of whether it's a gift or sale transaction, the seller or transferor should provide the title with their signature along with information about the sale, vehicle sale price, market value and mileage. They must also ensure that the vehicle has no lien on it.
Both parties involved will need to complete the Affidavit of Non-Dealer Transfer of Motor Vehicles form available through the Tennessee Department of Revenue's website. This form asks for the following information:
- Type of vehicle transfer (gift or lineal relative)
- Contact details and identification for both parties
- Detailed information about the vehicle (year, make, model, vehicle identification number, value, sales date, any lien details)
- Any conditions as part of a gift (such as money paid or services rendered)
- Signatures and date
Completing the Title Transfer Process
When it's time to complete the title transfer, you can head to the local department of motor vehicles with the title and the gift affidavit for a car in TN if the car was gifted or sold by a lineal relative. You'll also need their ID, documentation showing Tennessee residency, any vehicle invoice provided and an odometer disclosure statement.
If the car didn't meet any of the exemptions, prepare to pay the full taxes due when you go to register the vehicle. The county website may have a calculator that can show the amount. Keep in mind that even if the sales tax gets waived, county-specific fees for transferring the title and getting license plates will still apply. There may also be fees for mailing the car's registration document.
- Tennessee Department of Revenue: Affidavit of Non-Dealer Transfers of Motor Vehicles and Boats
- Davidson County Clerk: Frequently Asked Questions
- Auto Simple: How to Buy, Title & Register a Vehicle in Tennessee
- Knox County, Tennessee: Tennessee Sales Tax and Other Fees
- Tennessee Department of Revenue: Taxation of Car and Boat Sales
- Policy Genius: What to Know About Gifting a Vehicle
- Hamilton County Clerk: State Sales Tax