Vermont’s sales tax on cars is a 6% Purchase and Use Tax, collected by the DMV when you register the vehicle. The tax applies to the price you paid or the vehicle’s J.D. Power clean trade-in value, whichever is higher, so a below-market price on paper will not shrink the bill.1Vermont Department of Motor Vehicles. Vehicle Taxation It is separate from Vermont’s general sales tax and funds transportation rather than the general fund.
What the 6% Applies To
Under 32 V.S.A. § 8903, the rate is the same but the ceiling depends on the vehicle:
- Pleasure cars, motorcycles, motor homes, and vehicles up to 10,099 pounds: 6% of the taxable cost, with no dollar cap.
- All other motor vehicles: 6% of the taxable cost or $2,486, whichever is less. The cap benefits buyers of heavier commercial trucks.
For Vermont residents, the tax is due at purchase. For vehicles brought in from out of state, it is due at first registration here.2Vermont General Assembly. Vermont Code 32 V.S.A. 8903 – Tax Imposed
How the Taxable Amount Is Calculated
Trade-In Lowers It
If you trade a vehicle in as part of the deal, the dealer’s trade allowance is subtracted from the purchase price before the 6% is applied. The trade must be registered or titled in your name and signed over to the dealer.3Vermont General Assembly. Vermont Code 32 V.S.A. 8902 – Definitions Buy a $30,000 car and trade in a vehicle valued at $8,000, and the tax applies to $22,000.
Manufacturer Rebates Do Not
A manufacturer rebate reduces your out-of-pocket cost but not your tax. Because the rebate comes from the manufacturer rather than lowering the price between you and the dealer, the statutory purchase price stays at the full pre-rebate amount. A $2,000 factory cash-back offer still leaves you taxed on the sticker.
The J.D. Power Floor
When the DMV believes the reported price does not reflect actual value, 32 V.S.A. § 8907 lets the Commissioner set the taxable cost at the J.D. Power clean trade-in value for the same make, model, and year.4Vermont General Assembly. Vermont Code 32 V.S.A. 8907 – Commissioner; Computation of Taxable Costs That is the rule that stops a friend or family member from transferring a car for a token dollar. For unusual vehicles that do not appear in the J.D. Power database, the Commissioner can use an alternative valuation.
Leased Vehicles
Leases are also taxed at 6%, but the paperwork runs through the dealer or leasing company on a Vermont Dealer worksheet or a Purchase and Use Tax Computation — Leased Vehicle form. If you buy the vehicle at lease end, you pay tax on the residual: original acquisition cost minus the lease-end value equals the amount taxed.1Vermont Department of Motor Vehicles. Vehicle Taxation
Exemptions That Eliminate the Tax
Vermont exempts several transfers under 32 V.S.A. § 8911. You have to claim the exemption affirmatively using Form VT-014; it is not automatic.5Vermont Department of Motor Vehicles. Tax Documents
Gifts Between Close Family
A vehicle given between close family members passes tax-free if it was previously registered or titled in Vermont under the original donor’s name. The qualifying relationships are broader than most people assume:
- Spouses and ex-spouses
- Parents and stepparents, including in-laws
- Children and stepchildren, including in-laws
- Siblings and stepsiblings
- Grandparents and grandchildren
- A trust established for the benefit of any of the above
The vehicle can move among these relatives any number of times as long as it traces back to a Vermont registration.6Vermont General Assembly. Vermont Code 32 V.S.A. 8911 – Exceptions A gift to a nephew, cousin, or unmarried partner does not qualify.
Credit for Tax Paid to Another State
If you move to Vermont and already paid sales or use tax on the vehicle elsewhere, Vermont credits that payment. If the other state’s rate equaled or exceeded 6%, you owe nothing more. If you paid less, you pay only the difference. Bring the out-of-state title and proof of payment, such as a cancelled check.6Vermont General Assembly. Vermont Code 32 V.S.A. 8911 – Exceptions
Transfers With a Business You Control
Moving a vehicle between yourself and a business entity you control is exempt if the transfer qualifies under Section 351 of the Internal Revenue Code. This is the common incorporation scenario. The vehicle must already be registered in Vermont under the transferor’s name.6Vermont General Assembly. Vermont Code 32 V.S.A. 8911 – Exceptions
Disability and Veteran Vehicles
One vehicle modified with adaptive driving controls or a mechanical lifting device for a person with a permanent physical disability is exempt once the Commissioner certifies it. Vehicles acquired by veterans with financial assistance from the U.S. Department of Veterans Affairs, including replacements, are exempt when supported by an approved VA Form 21-4502.6Vermont General Assembly. Vermont Code 32 V.S.A. 8911 – Exceptions
Other Costs at Registration
The Purchase and Use Tax is the largest line, but not the only one. Annual registration fees depend on fuel type:
- Gas or diesel vehicles: $91
- Plug-in hybrids: $135.50
- Battery-electric vehicles: $178
- Other fuel types: $159.25
The higher figures for electric and plug-in hybrids include a supplemental charge that offsets lost gas tax revenue.7Vermont Department of Motor Vehicles. Registration Fees A new certificate of title is $42.8Vermont Department of Motor Vehicles. Title Fees Dealers typically add their own documentation fee on top.
Filing and Paying
The main form is Form VD-119, the Vermont Registration, Tax and Title Application. It handles registration, titling, and tax payment together, and asks for the VIN, odometer reading at sale, seller information, and a breakdown of the purchase price including any trade allowance.9Vermont Department of Motor Vehicles. Registration, Tax and Title Application If you are claiming an exemption, add Form VT-014, which in 2022 replaced three older exemption forms and now covers out-of-state tax credits, gift transfers, disability exemptions, and business entity transfers.5Vermont Department of Motor Vehicles. Tax Documents
You can submit everything in person at a DMV office or by mail. Cash, check, and money order carry no surcharge. Credit and debit cards are accepted in person and online with a 2.3% processing fee; cards are not accepted by mail.10Vermont Department of Motor Vehicles. Upcoming Change to Credit and Debit Card Processing Fees Once the DMV processes payment and verifies the application, it issues a registration and title.
Deducting the Tax on Your Federal Return
Vermont’s Purchase and Use Tax qualifies as a deductible state and local tax if you itemize on Schedule A. You have to choose between deducting state and local income taxes or state and local sales taxes for the year, not both. Because Vermont has a state income tax, the sales tax election usually only helps if your total sales tax payments for the year exceed what you paid in state income tax.
Starting in 2025, the total deduction for state and local taxes (property, income, and sales combined) is capped at $40,000 for most filers, increasing by 1% annually through 2029. For 2026, the cap is $40,400. Married couples filing separately get half. The cap phases down for taxpayers with modified adjusted gross income above $500,000. If your overall state and local taxes sit well below the ceiling, the vehicle tax deduction can meaningfully reduce the federal bill in the year you buy.