Kentucky: Sales Tax Handbook
How are vehicle sales taxed in Kentucky?
Kentucky Sales Tax on Car Purchases:
Vehicles purchases are some of the largest sales commonly made in Kentucky, which means that they can lead to a hefty sales tax bill. This page covers the most important aspects of Kentucky's sales tax with respects to vehicle purchases. For vehicles that are being rented or leased, see see taxation of leases and rentals.
Kentucky collects a 6% state sales tax rate on the purchase of all vehicles.
In addition to taxes, car purchases in Kentucky may be subject to other fees like registration, title, and plate fees. You can find these fees further down on the page.
Do Kentucky 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 Kentucky, the sales tax applies to the full price of the vehicle without considering trade-ins. Thus, the taxable price of your new vehicle will still be considered to be $10,000 despite your trade-in accounting for $5,000 of the price.
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.
Kentucky taxes vehicle purchases after rebates or incentives are applied to the price, which means that the buyer in this scenario will only pay taxes on the vehicle as if it cost $9,000.
Other taxes and fees applicable to Kentucky car purchases
In addition to state and local sales taxes, there are a number of additional taxes and fees Kentucky car buyers may encounter. These fees are separate from the sales tax, and will likely be collected by the Kentucky Department of Motor Vehicles and not the Kentucky Department of Revenue.
Average DMV fees in Kentucky on a new-car purchase add up to $211, which includes the title, registration, and plate fees shown above.
Kentucky 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 Kentucky is $3151, and Kentucky 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 Kentucky calculated by Edmunds.com
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