Recommended for Car Buyers
You skillfully negotiate the price of your new car and you think you're getting a darn good deal. But when you see the contract, the total is much higher than what you planned on paying. Then you see the problem: There are fees in the contract you didn't know you had to pay. It leaves you wondering if these new car fees really are legit.
To answer that question, Edmunds.com has created a chart with all the car-buying fees you may encounter. In addition, we show how the different states charge sales tax on trade-ins and rebates. If you've never used the chart before, it's worth reading about the process first. But you also can go directly to the fees chart.
An Overview of the Process
Most commonly, there are three categories of car-buying fees: vehicle registration fees, sales tax and a documentation fee or "doc fee." Joe Magyar, a tax expert from Crowe Horwath LLP who teaches workshops for dealers at National Automobile Dealers Association meetings, says that dealers have a strong incentive to collect taxes correctly. "Because there are so many dollars flowing through the dealership they often get audited," he says.
The following are the main categories of fees charged by dealers.
Vehicle Registration Fees. This is the amount charged by the state to register the new car, assign a title (legal proof of ownership) and cover the cost of license plates. The dealer provides this service for you, saving you a trip to the DMV or registry. Usually, the more expensive the car is, the higher the registry fees.
Sales Tax: Sales tax on a new car amounts to more than most people expect. For example, at 8 percent, sales tax on a $20,000 car will cost you $1,600. Cities and counties frequently add a quarter of a percentage point, so the amount you pay can vary within a state.
Documentation Fees: Dealerships charge car buyers a documentation fee, or "doc fee," to cover the cost of preparing and filing the sales contract and other paperwork. In some states, the doc fee is limited by state law. In other states where doc fees are unregulated, dealerships may sell a car at an attractive price but then add a high doc fee to the contract. Review the chart below to see how your state handles doc fees. If your state does not limit doc fees, find out early on in the buying process what the dealership charges. If the doc fee is substantially higher than your state's average listed in the chart, negotiate the car's price more aggressively to offset this fee. And keep in mind, as tax expert Magyar points out, that dealers also charge sales tax on the doc fee.
In the chart, you will see the estimated average doc fees dealers charge in each state, based on figures supplied by the thousands of dealers participating in Edmunds' Price Promise SM program. We've taken the data provided by those dealers, averaged it and rounded it up or down to the nearest $5. When you go car shopping, these estimates are a valuable guide to determine if a dealership is charging close to the average doc fee in your state.
Keep in mind that the doc fee is one of a number of factors affecting your shopping
experience and your choice of a dealership. For example, if a salesperson is giving you especially good customer service, then a higher doc fee might be acceptable to you. If a dealership is giving you a very low purchase price, even after the higher doc fee, it would still be a net savings for you.
Taxing the Sale
While fees directly affect what you pay, taxes also affect your out-the-door cost. Here is how different states handle the taxes.
Rebates. Customer cash rebates reduce the purchase price of the car. But Magyar says most states charge sales tax on the full purchase amount before the customer cash rebate is applied. For a $25,000 car with a $500 rebate that reduces the sale price to $24,500, you'll pay tax on $25,000. In the chart below. look at the column labeled "Are Incentives Taxed?" If there is a "Y" in this column, it means the sales tax is based on the car's price before rebates.
Trade-In: In many states, if you trade in your old car, you can get a nice tax break. If there is a "Y" in the "Trade-In Sales Tax" column of your state, you are only taxed on the difference between the new car and your trade-in. So, if your new car costs $25,000 and you are getting $10,000 for your trade-in, you will only be taxed on the difference, or $15,000. If sales tax in your state is 10 percent, this will save you $1,000. If there is an "N" in the column, it means that you will pay tax on the full amount of your new car purchase, and the trade-in has no bearing on the sales tax you are charged.
Other Car-Buying Fees
There are two other car-buying fees that frequently arise and that buyers should know about:
Dealer Fees: Some dealers write other fees into the contract and give them official-sounding names: "S&H" or "Dealer Prep" or even "Shipping." Find out early what fees you will be charged and negotiate accordingly. Before you sign the contract, ensure that no additional dealer fees have been added.
Advertising Fees: Sometimes buyers look up invoice prices on Edmunds and find they don't match the invoice price given by a dealer. What's going on? There is probably an advertising fee attached to the invoice price of the car. If the car's invoice lists an advertising fee, this is an actual charge made by the manufacturer to the dealer and you should pay it. However, some dealers will add an unofficial advertising fee into the sales contract, perhaps claiming they are offsetting the cost of their own advertising efforts. If you encounter this dealer-added advertising fee, you can challenge it or negotiate a lower purchase price on the car to offset the additional charge.
While this chart helps estimate fees, don't expect to calculate your final cost to the penny. Registry fees, in particular, are tricky, but the DMV Web site in many states has a calculator for this purpose. Additionally, many states have nominal charges (less than $40) for local environmental laws. Still, this chart will tell you roughly what to expect and help you budget accordingly. Finally, doc fees and sales taxes change frequently. Edmunds.com updates this information as it is made available. Let us know if you come upon any changes.