Alabama: Sales Tax Handbook
How are vehicle sales taxed in Alabama?
Alabama Sales Tax on Car Purchases:
Vehicles purchases are some of the largest sales commonly made in Alabama, which means that they can lead to a hefty sales tax bill. This page covers the most important aspects of Alabama's sales tax with respects to vehicle purchases. For vehicles that are being rented or leased, see see taxation of leases and rentals.
Alabama collects a 2% state sales tax rate on the purchase of vehicles, which includes off-road motorcycles and ATVs. Including city and county vehicle sales taxes, the total sales tax due will be between 3.375% and 4% of the vehicle's purchase price.
In addition to taxes, car purchases in Alabama may be subject to other fees like registration, title, and plate fees. You can find these fees further down on the page.
Do Alabama vehicle taxes apply to trade-ins and rebates?
How are trade-ins taxed?
Many dealerships allow you to trade-in your old car in exchange for a credit applied to the price of a new vehicle. For example, you could trade-in your old car and receive a $5,000 credit against the price of a $10,000 new vehicle, making your out-of-pocket cost only $5,000.
In Alabama, the taxable price of your new vehicle will be considered to be $5,000, as the value of your trade-in is not subject to sales tax. This means that you save the sales taxes you would otherwise have paid on the $5,000 value of your trade-in.
How are rebates and dealer incentives taxed?
Many dealers offer cash incentives or manufacturer rebates on the sticker price of a vehicle in order to encourage sales. For example, a $1,000 cash rebate may be offered on a $10,000 car, meaning that the out of pocket cost to the buyer is $9,000.
Alabama taxes vehicle purchases before rebates or incentives are applied to the price, which means that the buyer in this scenario will pay taxes on the vehicle as if it cost the full $10,000.
Other taxes and fees applicable to Alabama car purchases
In addition to state and local sales taxes, there are a number of additional taxes and fees Alabama car buyers may encounter. These fees are separate from the sales tax, and will likely be collected by the Alabama Department of Motor Vehicles and not the Alabama Department of Revenue.
Average DMV fees in Alabama on a new-car purchase add up to $4691, which includes the title, registration, and plate fees shown above.
Alabama Documentation Fees
Dealerships may also charge a documentation fee or "doc fee", which covers the costs incurred by the dealership preparing and filing the sales contract, sales tax documents, etc. These fees are separate from the taxes and DMV fees listed above.
The average doc fee in Alabama is $4851, and Alabama law does not limit the amount of doc fees a dealer can charge. Because these fees are set by the dealerships and not the government, they can vary dealership to dealership or even vehicle to vehicle.
1 - Average DMV and Documentation Fees for Alabama calculated by Edmunds.com
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