Q I bought a used car earlier this year and paid sales tax when I registered it. I am thinking about selling it and buying another. Do I have to pay the full sales tax again? I understand that if I trade in the car with a dealership, I only pay tax on the net difference between trade-in price and purchase price. Is there any such benefit available to private party sales?
A New and used vehicles are subject to the 6.5 percent sales tax on motor vehicles each time the title transfers from one person to another.
A credit that reduces the taxable sales price is allowed for trade-ins of motor vehicles. To be eligible for this credit you must trade one motor vehicle for another in the same transaction. The trade-in credit is allowed whether you purchase a vehicle from a dealership or from a private individual. However, no credit is allowed if you sell your vehicle to someone other than the person you are purchasing a vehicle from.
For example: You sell your vehicle to your neighbor for $5,000 and buy a newer vehicle from a dealership for $15,000. Because you didn't trade your vehicle into the dealership on the purchase of the new vehicle, you must pay the 6.5 percent sales tax on the full $15,000 purchase price. Your neighbor will also pay the 6.5 percent tax on his $5,000 purchase when he registers the vehicle in his name.
Example 2: You trade your vehicle worth $5,000 for a vehicle that your neighbor is selling for $15,000. Because you traded one vehicle for another in the same transaction, you'll pay sales tax on $10,000 ($15,000 minus the $5,000 trade-in) when you register your new vehicle.
Minnesota Department of Revenue
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