What car excise tax is
Excise tax on a car is a state or local tax on vehicle ownership, separate from sales tax. You pay it once a year (or sometimes twice a year) based on the value of your vehicle. The tax funds state and local road maintenance, public transportation, and vehicle registration programs.
Excise tax is not the same as sales tax. When you buy a car, you pay sales tax on the purchase price. Excise tax comes later, as an annual fee for owning the vehicle. Some states call it a property tax on vehicles; others call it a registration tax or ad valorem tax. The name varies, but the concept is the same: you own the car, so you owe the state money each year.
Not every state charges excise tax on cars. Some states use only sales tax and registration fees. Others charge excise tax instead of sales tax on vehicles. A few charge both. The amount you pay depends on where you live, what your car is worth, and sometimes how old it is.
Key Takeaways
- Excise tax on a car is an annual tax based on the vehicle's value, paid to your state or local government separate from sales tax.
- The tax rate and calculation method vary by state — some use the full market value, others reduce the value by a percentage each year.
- You typically pay excise tax when you register your vehicle or renew your registration each year.
- Some states do not charge excise tax on vehicles at all, while others charge it in place of or in addition to sales tax.
How the tax amount is calculated
Excise tax is calculated by multiplying your vehicle's assessed value by the tax rate set by your state or county. The assessed value is usually the market value of the car — what it would sell for in its current condition. States determine this value in different ways: some use the manufacturer's suggested retail price (MSRP) for new cars, others use the actual sale price you paid, and still others use a depreciation schedule that reduces the value each year.
The tax rate itself varies widely. Some states charge a flat percentage — for example, 2 percent of the vehicle's value. Others set different rates based on the vehicle type (passenger car, truck, motorcycle) or the vehicle's age. A few states use a tiered system where older cars pay less than newer ones.
Here is a simplified example: if your state charges 2 percent excise tax and your car's assessed value is $20,000, you would owe $400 per year. If the assessed value drops to $18,000 in year two (because the car depreciated), your tax would drop to $360. The exact calculation depends on your state's rules.
When and how you pay excise tax
You typically pay excise tax when you register your vehicle with your state's Department of Motor Vehicles (DMV) or equivalent agency. If you buy a new car, you pay it as part of the registration process. If you already own a car, you pay it when you renew your registration — usually every year or every two years, depending on your state.
The tax bill comes with your registration renewal notice. You can usually pay it online through your state's DMV website, by mail, or in person at a DMV office. Some states allow you to pay at your local town or city clerk's office instead. The payment important date is typically the same as your registration renewal important date.
If you move to a different state, you will need to re-register your vehicle in the new state and pay that state's excise tax (if it charges one). You do not pay excise tax to two states at once.
States that charge excise tax versus those that don't
About a dozen states charge some form of excise tax on vehicles. These include Massachusetts, Rhode Island, Connecticut, New Hampshire, Vermont, Maine, and a few others. The tax is a significant source of revenue for road maintenance and public transportation in these states.
Many states do not charge excise tax on cars at all. Instead, they rely on sales tax at the time of purchase, annual registration fees, and fuel taxes to fund transportation. Some states charge a flat registration fee (like $50 or $100 per year) rather than a percentage-based excise tax.
A handful of states charge both sales tax on the vehicle purchase and excise tax on ownership. The combination can be substantial, so it is worth checking your state's rules before buying a car if you are new to the area.
How excise tax differs from other car-related taxes and fees
Sales tax is a one-time tax on the purchase price of the car, paid when you buy it. Excise tax is an annual tax on ownership. Registration fees are flat annual fees (often $25 to $150) that cover the cost of issuing your license plate and registration documents. Fuel tax is built into the price of gasoline and funds road maintenance.
You may pay all four of these in a single year. For example, you might pay 6 percent sales tax when you buy the car, $400 in annual excise tax, $75 in registration fees, and fuel tax every time you fill up. Each serves a different purpose and goes to different government accounts.
Some states waive or reduce excise tax for certain vehicles — electric cars, for instance, may be taxed at a lower rate or not at all in some states as an incentive to buy them. Older vehicles may also be taxed at a lower rate. Check your state's DMV website to see if your car qualifies for any reduction.
What happens if you don't pay excise tax
If you do not pay excise tax by the important date, your vehicle registration will lapse. You cannot legally drive the car on public roads without a valid registration. If you are caught driving an unregistered vehicle, you can be fined and your car may be impounded.
If you miss the payment, you will also owe a late fee or penalty on top of the original tax amount. The penalty varies by state but is typically 10 to 25 percent of the unpaid tax. If the debt goes unpaid for a long time, it may be sent to a collection agency or reported to the credit bureaus.
If you believe the assessed value of your car is too high, most states allow you to file a formal appeal or abatement request with your local assessor's office. You will need to provide evidence of the car's actual value — such as a recent appraisal, a comparable sale price, or damage that reduces the value. The process varies by state, so contact your assessor's office for details.
Frequently Asked Questions
Is excise tax the same as property tax?
Excise tax on vehicles is sometimes called property tax on vehicles because the car is considered property. However, it is calculated differently than property tax on a house. Vehicle excise tax is based on the car's market value and depreciates each year, while home property tax is based on the assessed value of the property, which may increase over time.
Can I deduct excise tax on my federal income tax return?
No. The federal government does not allow you to deduct state excise tax on vehicles as an itemized deduction. You can deduct state and local taxes (SALT) up to $10,000 per year, but vehicle excise tax is not included in that category.
Do I have to pay excise tax if I own a car but don't drive it?
Yes. Excise tax is based on ownership, not use. If you own a car registered in your name in a state that charges excise tax, you owe the tax whether you drive it every day or park it in a garage and never use it. The only way to avoid the tax is to not register the vehicle in that state.
What if I sell my car mid-year?
Most states prorate excise tax based on when you sell the car. If you sell it halfway through the registration year, you pay tax for only the months you owned it, and the new owner pays for the remaining months. You will need to notify your DMV of the sale and provide proof to the new owner so they can register it in their name.
Does excise tax explore to motorcycles and trucks?
Yes, but the rate may be different. Some states charge a lower excise tax rate on motorcycles than on cars. Trucks may be taxed at the same rate as cars or at a different rate depending on their weight and classification. Check your state's DMV website for the specific rates that explore to your vehicle type.