Navigating the process of buying, selling, gifting, or donating a vehicle in Maryland involves understanding various regulations, and one of the most important aspects is the Maryland Sales Tax On Cars, officially known as the vehicle excise tax. This guide provides a detailed overview of how Maryland sales tax applies to car transactions, ensuring both buyers and sellers are well-informed and compliant with Maryland Motor Vehicle Administration (MVA) requirements.
Private vehicle sales in Maryland, unlike those from licensed dealerships, are not regulated by the MVA in terms of warranties or consumer rights. Therefore, understanding your responsibilities regarding sales tax and proper documentation is crucial for a smooth and legal transaction. Always maintain copies of all ownership transfer documents for your records.
Maryland Car Sales Tax for Sellers in Private Transactions
If you are selling your vehicle privately in Maryland, it’s essential to understand your responsibilities in the transaction process, especially concerning the Maryland sales tax on cars and the paperwork required by the MVA.
Assigning Ownership and Sales Tax Implications
The first step is to correctly assign the vehicle title. On the back of the Certificate of Title, under the “Assignment of Ownership” section, the seller must sign, print their name, and include the buyer’s name and address. This section is critical for transferring ownership and for the MVA to recognize the sale for registration and tax purposes. An incomplete “Assignment of Ownership” section renders the title “open,” which is not acceptable for MVA registration.
Alt: Sample Maryland vehicle title assignment of ownership section highlighting buyer and seller signature areas.
Record the odometer reading in the designated “Assignment of Ownership” section. If there’s space for the purchase price on the title, include it along with the sale date. This information is relevant for determining the Maryland sales tax on cars, particularly if a Bill of Sale isn’t required.
Notary and Bill of Sale Requirements and Sales Tax
Whether you need a notary or a Bill of Sale depends on the vehicle’s age and sale price, and these factors directly influence how Maryland sales tax on cars is handled.
Generally, a notary isn’t required for the title transfer itself when the purchase price is clearly stated on the Maryland Certificate of Title. However, a notarized MVA Bill of Sale (form # VR-181) becomes necessary in specific situations, particularly when the sale price is less than the vehicle’s book value and the car is 7 years old or newer. To ascertain the vehicle’s book value, contact the MVA Customer Service Center.
- When is a Notarized Bill of Sale Required for Tax Purposes? A notarized Bill of Sale is mandatory if the selling price is below the book value and the vehicle is 7 years old or newer. This is to prevent underreporting of the sale price to reduce Maryland sales tax on cars.
- When is a Notarized Bill of Sale NOT Required? If the sale price is higher than the book value, or if the vehicle is older than 7 years, a notarized Bill of Sale is generally not needed. In these cases, the MVA often accepts the purchase price as stated on the title, especially if it’s within $500 of the retail value in the National Publication of Used Car Values.
Impact on Maryland Sales Tax on Cars: For vehicles 7 years old or newer sold below book value, the Maryland sales tax on cars (excise tax) will be calculated based on 6% of the book value or 6% of the purchase price on the notarized Bill of Sale, whichever is higher. For vehicles older than 7 years, the tax is based on the purchase price. Maryland’s minimum excise tax is $38.40, based on a minimum taxable value of $640.
Lien Release and Clear Title for Tax and Ownership Transfer
Providing the buyer with the original title and proof of lien release is crucial. This ensures the buyer can obtain a new title and correctly pay the Maryland sales tax on cars without complications.
If there was a lien on the vehicle, provide the original “Notice of Security Interest Filing” as proof of payoff. If this document isn’t available, a letter from the financial institution on their letterhead, stating no security interest, signed by an authorized agent, and including loan details (date, amount, release date, debtor info, vehicle details), is required.
Sellers must settle any liens before transferring ownership. Once the lien is satisfied, the financial institution will provide a lien release letter or a signed “Notice of Security Interest Filing.”
Important Note for Sellers: Once a new title is issued to the buyer, your old title and lien release documents are destroyed by the MVA.
Returning License Plates and Avoiding Insurance Penalties
Before canceling your insurance, return the license plates to the MVA. Maryland enforces strict penalties for uninsured vehicles, starting at $150 for the first day. Unless you are transferring the plates to a new vehicle, return them to the MVA and keep the receipt before canceling insurance to avoid fines. This step, while seemingly separate, is part of responsible vehicle ownership transfer in Maryland, indirectly related to the overall compliance when dealing with Maryland sales tax on cars and vehicle regulations.
Maryland Car Sales Tax for Buyers in Private Transactions
For buyers in Maryland private vehicle transactions, understanding the required documents and procedures at the MVA is crucial, especially concerning Maryland sales tax on cars.
Essential Documents for Title Transfer and Sales Tax Payment
To transfer ownership, visit a full-service MVA office with the following documents. Registering the vehicle and obtaining new license plates must be done before legally driving the vehicle.
Certificate of Title: The buyer must sign the “Maryland Certificate of Title” in the “Assignment of Ownership” section. Co-buyers must also sign. Ensure the buyer’s name and address are in this section for MVA recognition. For out-of-state titles, complete form # VR-005, “MVA Application for Maryland Title.”
Alt: Maryland vehicle title example emphasizing the assignment of ownership area for buyer’s signature and details.
Lien Release Documentation: If the seller financed the vehicle, you’ll need a “Notice of Security Interest Filing” for Maryland titles or the out-of-state title showing the lien release. If unavailable, request a letter from the financial institution as described in the seller’s section.
MVA Bill of Sale and Excise Tax Calculation: As a buyer, be aware of when an MVA “Bill of Sale” is needed, especially concerning Maryland sales tax on cars.
- A notarized Bill of Sale is needed if the purchase price is less than the book value and the vehicle is 7 years old or newer.
- If no notarized Bill of Sale is presented, and the price is within $500 of the retail value in the National Publication of Used Car Values, the MVA may accept the title’s purchase price.
Excise Tax (Maryland Sales Tax on Cars) Calculation: This is a key aspect for buyers.
- For vehicles 7 years old or newer, the excise tax is 6% of the book value or 6% of the notarized Bill of Sale price, whichever is higher.
- For vehicles older than 7 years, the tax is 6% of the purchase price.
- The minimum Maryland excise tax is $38.40.
Vehicle Inspection: Used vehicles require a Maryland Safety Inspection before registration. Obtain a “Maryland Safety Inspection Certificate” from a licensed inspection station. Certificates are valid for 90 days. Verify the VIN on the certificate matches all vehicle documents. A Temporary Registration is available for vehicles needing inspection or repairs.
License Plates and Insurance: You’ll need to purchase new license plates and provide proof of Maryland-licensed vehicle insurance to register the vehicle.
Vehicle History and Title Checks
Always inspect the title carefully for any salvage brands, which indicate significant damage. In Maryland, salvaged vehicles require a salvage inspection before retitling. Maryland brands salvage certificates with categories like “Damage greater than market value,” “Not rebuildable,” or “Stolen/abandoned.”
For vehicles with salvage titles branded “rebuilt salvage,” a Maryland Salvage Inspection and a Maryland Safety Inspection are required before registration. Check the MVA vehicle history for Maryland-registered vehicles. For out-of-state vehicles, contact that state’s DMV for vehicle history. Services are also available online for comprehensive vehicle history reports.
Helpful Transaction Tips for Buyers: Verify the seller’s name on the title, check for title alterations, and ensure the VIN matches. The title should be properly completed at the time of transaction.
Donating a Vehicle and Maryland Sales Tax Considerations
Donating a vehicle to charity in Maryland also requires proper title transfer and understanding of Maryland sales tax on cars implications, though donations are often tax-deductible federally, not exempt from Maryland excise tax unless sold by the charity to the end user.
Responsibilities of the Vehicle Owner (Donor):
- Assign the title to the charity correctly, similar to a sale, filling in the charity’s name and address in the “Assignment of Ownership” section. Leaving it blank can cause issues and affect tax deductions.
- Record the odometer reading on the title.
- Provide lien release documents if applicable.
- Remove and return license plates to the MVA after title transfer and before canceling insurance.
Responsibilities of the Charity:
- Provide the donor with a receipt for tax purposes. Consult the charity about allowable tax deductions, and understand that while the donor might get a federal deduction, the transaction itself isn’t excise tax exempt in Maryland unless the charity is the end user and registers it.
Gifting a Vehicle and Excise Tax Exemption in Maryland
Gifting a vehicle within immediate family members in Maryland may qualify for an excise tax exemption, impacting the Maryland sales tax on cars obligation.
Eligible Family Relationships for Gift Exemption:
- Spouse, children (including adopted and step), grandchildren, parents (including step), siblings (including half), grandparents, in-laws, and aunt/uncle (over 65) to niece/nephew.
Proof of Relationship: If last names differ, provide proof of relationship like marriage or birth certificates. For aunt/uncle to niece/nephew gifts, a Certified Statement (form # VR-299) and Gift Certification (form # VR-103) are needed.
Certificate of Title for Gifts: The vehicle must already be titled in Maryland to be gifted tax-exempt. Submit the Gift Certification (form # VR-103) with the title.
- Complete the “Assignment of Ownership” section as if selling, but write “gift” in the purchase price section with the transaction date. Include the odometer reading.
Vehicle Inspection for Gifts: Transfers between spouses or parent and child are exempt from inspection if titled in Maryland. Other family gift transfers require a Maryland Safety Inspection.
Lien Release for Gifts: Provide “Notice of Security Interest Filing” or a lien release letter if applicable.
Excise Tax Exemption (Maryland Sales Tax on Cars): Gifts within eligible family members for Maryland-titled vehicles are excise tax exempt. Out-of-state gifts are not exempt unless previously Maryland-titled and meeting relationship requirements.
Plate Transfer and Registration for Gifts: Insurance information is required for registration. Plates can be transferred in limited family gift scenarios (e.g., between spouses, parent-child). New plates are needed for other gift transfers.
Unlicensed vs. Licensed Dealers and Tax Implications
Be aware of “curbstoners” – unlicensed dealers selling vehicles, often without proper documentation or tax handling. Licensed dealers must have a business license and operate from licensed locations. Only licensed dealers can legally collect and remit Maryland sales tax on cars on behalf of the MVA. Private sellers and buyers are responsible for understanding and complying with tax regulations themselves.
Understanding Maryland sales tax on cars is crucial for anyone involved in vehicle transactions in Maryland. Whether buying, selling, gifting, or donating, compliance with MVA regulations ensures a legal and financially sound process. Always refer to official MVA documents and resources for the most accurate and up-to-date information.
