Why Are Cars Cheaper in Some States Than Others: The Sales Tax and Dealer Fee Impact

Car shopping involves more than just comparing vehicles and haggling with dealers—your state of residence plays a surprisingly significant role in what you ultimately pay. With new vehicles averaging around $48,000, discovering which states offer more affordable purchasing conditions could save you thousands of dollars. The question “are cars cheaper in different states?” has a clear answer: yes, substantially so in some cases.

Different states impose vastly different costs on car purchases due to sales tax rates and dealer fee structures. According to comprehensive data from Kelley Blue Book, ISeeCars, AARP, and LendingTree analyzed through 2023, these variables create a wide spectrum of affordability across the nation. Some buyers could pay significantly less simply by relocating their purchase to a neighboring state—a factor that smart shoppers increasingly consider when making this major financial decision.

The Foundation: Why State Location Matters for Your Car Purchase

Your state of residence determines several cost factors beyond the vehicle’s price itself. Sales tax rates vary dramatically, ranging from 0% in certain states to over 7.5% in others. Additionally, dealer fees—the transaction costs charged to complete a sale—fluctuate substantially by state, sometimes creating differences of thousands of dollars between adjacent regions.

Consider this: a buyer in one state might pay $2,000 in dealer fees while purchasing an identical vehicle in a neighboring state for only $300 in fees. When combined with sales tax calculations on a $50,000 purchase, these variations translate into real financial consequences for consumers making informed decisions about where to buy.

Sales Tax: The Most Visible Cost Factor

Sales tax represents the most obvious difference between states. Four states currently charge zero percent sales tax on vehicle purchases: Oregon, Montana, New Hampshire, and Delaware. For a $50,000 car purchase, eliminating the typical 5-7% sales tax saves between $2,500 and $3,500 immediately.

However, low sales tax doesn’t automatically guarantee affordability. Some states with higher sales taxes—up to 7.6%—still rank among the cheaper purchasing destinations because they compensate with lower dealer fees or more competitive vehicle pricing. This complexity means buyers must evaluate the complete financial picture rather than focusing on any single factor.

Dealer Fees: The Often-Overlooked Variable

Dealer fees represent the transaction costs charged to complete a purchase, and they vary dramatically by state. In 2023, some states averaged dealer fees under $400 for both new and used vehicles, while others exceeded $2,700. This disparity receives less media attention than sales taxes but impacts the total cost equally or sometimes more significantly.

States with the lowest dealer fees include Oregon (averaging $353 for used cars), Montana ($537), and Alaska ($315). These relatively modest charges dramatically offset other cost factors, even when vehicle prices themselves run higher than the national average. For comparison, states with higher dealer fees might charge substantially more to complete the same transaction.

Top Destinations: Where Buyers Find the Greatest Affordability

Oregon consistently ranks as the most affordable state for car purchases, combining zero sales tax with the second-lowest dealer fees in the nation ($353). Vehicle prices themselves fall near the national average, creating a compelling overall value proposition for buyers willing to navigate the purchase process in this state.

Montana offers similar advantages through zero sales tax coupled with extremely low dealer fees ($537), the third-lowest nationally. Despite vehicle prices running over 15% above the national average, the tax and fee structure compensates, making it an attractive option for cost-conscious buyers.

New Hampshire provides another zero-sales-tax advantage while maintaining dealer fees under $1,400. Vehicle prices in this state run approximately 5% below national averages, creating perhaps the best overall combination of low vehicle costs, minimal taxes, and reasonable transaction fees.

Other states offering strong affordability for car buyers include Hawaii (with below-average vehicle prices and moderate fees), Alaska (despite high vehicle costs, offset by minimal dealer fees), and Delaware (offering zero sales tax with relatively priced vehicles).

Less Affordable Options: Why Some States Cost More

North Carolina, New Mexico, and Wisconsin rank among the higher-cost states for car purchases. North Carolina combines relatively high sales tax (7%) with dealer fees approaching $2,000, though vehicle prices remain manageable. New Mexico similarly carries elevated sales tax (7.61%) and moderate dealer fees, while Wisconsin charges the highest dealer fees among more expensive states ($2,753 for new vehicles).

These higher-cost states still fall within reasonable purchasing ranges, but buyers in these regions face significantly greater total expenses compared to their counterparts in Oregon or Montana—differences that can exceed $2,000 to $3,000 on a single transaction.

The Complete Picture: Understanding Total Purchase Cost

Determining which states are cheaper for car buying requires analyzing multiple factors simultaneously. Vehicle prices themselves vary by state but typically fall within 5% of the national average. Sales tax and dealer fees create the most substantial differences, sometimes creating $3,000-$4,000 spreads between the most and least expensive states for identical vehicles.

Interestingly, some states with above-average vehicle prices still rank highly for affordability because their tax and fee structures compensate. Conversely, states with near-average vehicle pricing might cost substantially more overall due to higher taxes or excessive dealer charges. This counterintuitive reality highlights why comprehensive analysis matters more than examining any single variable.

Research Methodology and Data Sources

This analysis consolidated 2023 data from multiple authoritative sources to determine state-by-state affordability. Kelley Blue Book provided national average vehicle valuations and state-level pricing information. ISeeCars contributed additional market pricing data, while AARP supplied comprehensive state sales tax rates. LendingTree provided average dealership fee structures across states.

The study evaluated each state across four primary metrics: the percentage difference from the national average vehicle price, state sales tax rates, dealer fees for used car purchases, and dealer fees for new car purchases. All factors received equal weighting in the affordability rankings, creating an objective comparison framework that accounts for the complete financial picture rather than favoring any single cost component.

All data was collected and analyzed based on information available through September 2023, providing a recent snapshot of state-by-state car purchasing economics. While specific vehicle prices and dealer fees may shift over time, the relative affordability rankings between states typically remain consistent due to stable tax policies and fee structures.

Making Your Decision: State Affordability for Smart Car Buyers

Understanding that cars are cheaper in different states empowers buyers to make financially optimized decisions. Whether you have flexibility in your purchase location or are considering timing your purchase strategically, knowing which states offer superior affordability provides a meaningful advantage.

The difference between purchasing in an expensive state versus an affordable state can easily exceed $3,000 to $4,000 on a single transaction. For buyers making significant purchases over their lifetime, this accumulated savings becomes substantial. By choosing states with favorable tax and fee structures, smart consumers ensure they’re making the most financially sound car purchasing decisions possible.