Reducing the Tax Due

A customer may reduce the amount of the tax due by conducting a trade-in, a reciprocity agreement, or through dealer discounts or manufacturer rebates. Please continue reading for more information.

 

Discounts and Rebates

If the customer received a dealer discount or a manufacturer rebate at the time of purchase, the taxable purchase price may be reduced by the amount of the discount or rebate.

 

However, if a motor vehicle dealer sells a motor vehicle to a customer who will receive a rebate after the sale, the sales tax is based on the full purchase price of the vehicle. Upon receiving the rebate, the customer is not entitled to a refund of taxes originally paid on the rebate amount.

 

Trade-ins

A buyer of a motor vehicle or trailer from a dealer may take a trade-in allowance for vehicles he/she traded in toward the taxable purchase price of a vehicle. Only a motor vehicle can be traded in toward the purchase of a motor vehicle, which for this purpose is defined as cars, trucks, motorcycles, snow mobiles, or recreation vehicles. These motor vehicles may be traded interchangeably. Only a trailer may be traded in toward the purchase of another trailer. The trade-in of a boat does not reduce the taxable purchase price of either a car or a trailer.

 

Although two or more vehicles may be traded in toward the purchase price of one vehicle, one vehicle may not be traded in toward the purchase price of two or more vehicles.

 

A customer who trades in a vehicle to a dealer for another vehicle of equal or greater value may be granted a tax credit for the vehicle being traded in if the vehicle traded in is titled or registered in the name of the purchaser.

 

If the vehicle is purchased from an out-of-state dealer, the customer may be granted a tax credit for trade-ins if the state of purchase is reciprocal with Massachusetts.

 

Dealerships do not receive a trade-in allowance for vehicles they register in the dealership’s name.

 

Reciprocity

A reciprocity agreement is when states agree to allow a credit for state taxes paid on items purchased in the other state. Between two reciprocal states, sales/use tax paid to one state can reduce the tax due to the other state, if applicable. If one state has a higher tax than another, then the customer will only have to pay the difference between the two state taxes.

 

Reciprocity only applies when a vehicle purchased by a non-resident is brought into Massachusetts within six months of purchase. After six months, no tax is due to Massachusetts.

 

If the state  of purchase has a reciprocity agreement with Massachusetts and the rate of tax paid to that state is equal to or greater than the 6.25% Massachusetts use tax rate, no Massachusetts use tax is due.

 

If the state of purchase has a reciprocity agreement with Massachusetts and the rate of tax paid to that state  is less than the Massachusetts use tax rate, the purchaser must pay a use tax to Massachusetts. The Massachusetts use tax will be determined by subtracting the tax paid to the other state from the Massachusetts 6.25% use tax.

 

If the state  of purchase does not have a reciprocity agreement with  Massachusetts, the exemption/credit cannot be granted and the full 6.25% Massachusetts use tax is due.