Motor Vehicle Sales
Motor Vehicle Sales
Motor Vehicle Sales Tax is due on most motor vehicle sales or transfers.
Tax is due when a title transfers unless an exemption applies. This includes sales by car dealers, leasing companies, private individuals, or any other type of business.
A motor vehicle is any vehicle that requires a license for road use. Examples include:
- Cars
- Motorcycles
- Motor homes
- Pickups
- Trailers
- Commercial and non-commercial trucks
- Semi/Truck-tractors
- Tractors
- Vans
Starting July 1, 2023 the tax rate is 6.875% of the taxable vehicle sales price. Prior to July 1, 2023 the tax rate was 6.5%. This tax is paid to a deputy registrar or Driver and Vehicle Services of the Department of Public Safety when the title is transferred.
Local sales tax does not apply to sales of vehicles. Instead, a local vehicle excise tax may apply. See Local Vehicle Excise Tax.
Calculating the Vehicle Purchase Price
The taxable sales price is determined by subtracting any rebates and trade-in allowance from the vehicle sales price.
Starting July 1, 2023, the Motor Vehicle Sales Tax rate will increase from 6.5% to 6.875%.
| Vehicle sales price |
| - Rebates |
| - Trade-in allowance |
| = Taxable sales price of the vehicle |
| x 6.875% Motor Vehicle tax rate |
| = Motor Vehicle Sales Tax |
Vehicle Sales Price
The taxable sales price includes:
- Price of the vehicle
- Charges for labor performed (e.g., rustproofing, undercoating, dealer preparation, and transportation)
- Charges for accessories (e.g., running boards and mud flaps)
- Federal excise tax when it is imposed at the wholesale level and passed on to the customer
Do not charge tax on:
- Extended warranties
- Federal Excise tax that is imposed at the retail level and separately stated on the customer’s invoice
- Luxury tax on cars
- Registration, license, and document fees
Rebate
Rebates are deducted from the sales price of a motor vehicle before calculating the tax. The rebate must have a fixed value at the time of purchase. This includes manufacturers’ rebates and rebates issued by third parties.
Rebate may be:
- Shown on the purchase agreement as a reduction in the taxable sales price
- Applied as a down payment
- Refunded directly to the customer
Example
A credit card company offers car rebates as an incentive for buyers to use their credit card. The credit card company and vehicle manufacturer entered into a third-party agreement to offer the rebate. The rebate is deducted from the taxable sales price of the vehicle.
Note: Rebates from off-road vehicles – such as watercraft, all-terrain vehicles, and snowmobiles – do not reduce the sales price of a motor vehicle before calculating sales tax.
Trade-In Allowance
A trade-in allowance reduces the sales price when the seller takes a motor vehicle in trade. The type of vehicle being traded in determines which price to calculate the tax on.
| What type of vehicle is being purchased? | What type of vehicle is being traded in? | What price is sales tax calculated on? |
|---|---|---|
| Motor vehicle | Motor vehicle | The purchase price after subtracting the trade-in allowance |
| Motor vehicle | Off-road vehicle | The purchase price before subtracting the trade-in allowance |
Electric Vehicle (EV) Credits
The type of electric vehicle (EV) credit and when it is applied will determine how it applies to the purchase price of a motor vehicle.
| What type of electric vehicle (EV) credit is being used? | When is the EV credit received? | How is the EV credit handled in the motor vehicle purchase transaction? |
|---|---|---|
| Federal EV credit | As an upfront downpayment on the purchase of a motor vehicle | The EV credit qualifies as a rebate that reduces the motor vehicle purchase price |
| Federal EV credit | As a tax credit on an income tax return the year the motor vehicle was purchased | The EV credit does not qualify as a rebate and does not reduce the motor vehicle purchase price |
| Minnesota EV rebate | At the point of sale on the purchase of a motor vehicle | The EV credit qualifies as a rebate that reduces the motor vehicle purchase price |
| Minnesota EV rebate | Later, after the motor vehicle was purchased | The EV rebate does not qualify as a rebate and does not reduce the motor vehicle purchase price |
Local Vehicle Excise Taxes
Businesses selling motor vehicles in a county or a city with a vehicle excise tax must collect a $20 tax on each vehicle and report it on their Minnesota sales and use tax return. They must collect the excise tax even if the buyer is not from Minnesota and will register the vehicle in another state.
All buyers must pay local vehicle excise taxes except for:
- Federal government agencies
- Vehicles not required to be licensed for road use (marked police cars, fire trucks, ambulances)
- Vehicles for resale
Note: This fee is not collected by the deputy registrar or the Driver and Vehicle Services of the Department of Public Safety.
• The Minnesota Department of Revenue administers the vehicle excise tax for some counties. See Local Sales and Use Taxes.
• Some cities and counties administer their own excise tax. Contact the city or county directly for more information.