Sales tax on cars in Indiana is a flat 7% of the purchase price, and the rate is the same in every county. Dealers collect it at closing; private buyers pay it at the BMV when they title the vehicle. A trade-in lowers the taxable amount, a manufacturer rebate does not, and a handful of narrow exemptions cover transfers within a family, outright gifts, and inheritances.
What the 7% Is Calculated On
Indiana’s gross retail tax applies uniformly across all 92 counties, with no additional city or county tax layered on vehicles. A $35,000 car generates $2,450 in sales tax before any adjustments, whether you buy it in Indianapolis, Fort Wayne, or Evansville.
The tax is figured on the vehicle’s gross retail income, which is essentially the total consideration paid to the seller in cash, credit, or any other form. Delivery charges, dealer-installed add-ons, and the dealer’s documentation preparation fee are all part of the taxable amount when they are folded into the sale.1Indiana Secretary of State. Auto Dealer Services Division – Documentation Fees BMV title and registration fees are separate charges and are not themselves subject to the sales tax.
Trade-Ins Lower the Taxable Amount
When a vehicle is traded in as part of the same transaction, Indiana treats it as a like-kind exchange and subtracts the trade-in value from the gross retail income before applying the 7%. The trade-in value has to be listed separately on the invoice or bill of sale for the exclusion to apply.2Indiana General Assembly. Indiana Code 6-2.5-1-5 – Gross Retail Income
An example. You buy a $30,000 car and trade in your old one for $10,000. The dealer charges 7% on the remaining $20,000, so you owe $1,400 instead of $2,100. That $700 savings only works when the trade is part of the same deal and documented as such. Selling your old car separately, even to the same dealer on a different day, does not qualify.
Manufacturer Rebates Do Not Reduce the Tax
This one surprises buyers. A manufacturer rebate is treated as a form of payment from the manufacturer, not as a reduction in the dealer’s selling price, so the pre-rebate price is what gets taxed. It doesn’t matter whether you take the rebate as a check or assign it to the dealer at signing.3Indiana Department of Revenue. Sales Tax Information Bulletin 28S
Say you negotiate a $20,000 price on a car with a $2,000 manufacturer rebate. Indiana charges 7% on the full $20,000, which is $1,400, not $1,260. Dealer discounts work differently. A dealer knocking $2,000 off the sticker actually reduces the selling price, bringing the taxable amount to $18,000.
Private Sales and Below-Market Prices
Buying from a private seller does not avoid the 7%. What changes is who collects it. No dealer is in the middle, so you pay the tax directly to the BMV when you apply for a title. The tax is based on the purchase price you report, but the BMV will compare that price against the vehicle’s book value.
Prices well below fair market value get scrutiny. The BMV may assess tax on the book value rather than the amount you paid. To document a legitimate below-market sale, the buyer and seller should complete the Certificate of Gross Retail or Use Tax Exemption (Form ST-108E, State Form 48841) and include a written explanation for the low price, such as mechanical problems, body damage, or unusually high mileage.4Indiana Department of Revenue. Certificate of Gross Retail or Use Tax Exemption for the Purchase of a Motor Vehicle or Watercraft Understating a purchase price to reduce the tax is fraud, and the state can assess back taxes and penalties.
Buying a Car Out of State
An Indiana resident who buys a vehicle in another state still owes Indiana’s 7%. The state imposes a use tax at the same rate, and it applies when the vehicle comes back for titling. If you already paid sales tax to the state where you bought the car, Indiana credits that amount and you owe only the difference when the other state’s rate was lower.3Indiana Department of Revenue. Sales Tax Information Bulletin 28S
Michigan, for example, charges 6%. You pay 6% there and 1% to Indiana at the BMV. If the other state’s rate was 7% or higher, nothing further is owed here. Bring proof of the tax paid elsewhere when you title the vehicle.
Leased Vehicles
Leases are taxed differently from purchases. Instead of 7% on the full vehicle price up front, Indiana collects the tax on each payment as it comes due, including the down payment, any capitalized cost reduction paid at signing, and every monthly payment for the life of the lease.5Indiana General Assembly. 45 IAC – Motor Vehicle Lease Sourcing
Less at the start, more spread across the term. On a lease with a $2,000 down payment and $400 monthly payments over 36 months, that works out to $140 in tax at signing plus $28 per month, totaling $1,148. The leasing company handles collection and remittance, and the tax appears as a line item on your monthly bill. For an Indiana resident whose vehicle is primarily located in the state, the full 7% applies.
When You Don’t Owe Sales Tax
The exemptions that apply to individuals are narrow.
Intrafamilial Title Changes
Adding or removing a family member from a vehicle title is exempt. The relationship has to be spouse, child, parent, grandparent, or sibling of the current owner, and it applies to changing who appears on the title, not to selling the car to a relative for money.6Indiana General Assembly. Indiana Code 6-2.5-5-15.5 – Motor Vehicles Intrafamilial Title Transfers Claim it by completing the Direct Relative Identification section on Form ST-108E, listing the original names, the relationship, and the names being added or removed.4Indiana Department of Revenue. Certificate of Gross Retail or Use Tax Exemption for the Purchase of a Motor Vehicle or Watercraft
Gifts and Inheritances
A vehicle transferred as an outright gift or through inheritance is exempt regardless of the relationship. The requirement is that no money change hands. If the recipient takes over loan payments, that counts as consideration and disqualifies the exemption, unless the recipient was already on the original loan.4Indiana Department of Revenue. Certificate of Gross Retail or Use Tax Exemption for the Purchase of a Motor Vehicle or Watercraft The BMV watches for sales dressed up as gifts. A transfer that isn’t genuinely free can trigger back taxes and penalties.
Military Duty-Free Importation
Active-duty service members sometimes assume that bringing a vehicle into the country duty-free also skips Indiana’s sales tax. It doesn’t. If you didn’t pay 7% when you bought the vehicle and didn’t title it before importing, standard sales tax rules apply.7Indiana Bureau of Motor Vehicles. Resources – Military Families Sales tax paid to another state on the original purchase still earns the same credit against Indiana’s use tax that any resident gets.
Paying the Tax and Titling on Time
For a dealership purchase, the dealer collects the 7% at closing and handles the title paperwork. For a private sale or an out-of-state purchase, you pay the tax at the BMV when you apply for a title. Either way, Indiana requires the title application within 45 days of the purchase date.8Indiana Bureau of Motor Vehicles. Titles – Buying and Selling a Vehicle
Miss the 45 days and administrative penalties apply: $30 for a late title application and $15 for late registration, on top of the $15 title fee.9Indiana Bureau of Motor Vehicles. BMV Fee Chart Bring the bill of sale showing the purchase price, the title signed by the seller, proof of insurance, any exemption forms, and, for an out-of-state purchase, documentation of any sales tax already paid.