Sales Tax and Car Insurance (Hidden Costs of Buying a Car)

The hidden costs of buying a car include sales tax and car insurance. Sales tax is a one-time expense, but car insurance is paid monthly and the average rates are $119/mo. Shopping for cheap car insurance is a necessity and it's one of the car ownership costs you can control.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jul 22, 2020

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Here's what you need to know...

  • There are many hidden costs when it comes to vehicle ownership
  • Most states require sales tax to be paid when a car is purchased
  • Car insurance is a requirement
  • Repairs and maintenance are other hidden costs associated with ownership
  • Car insurance is paid monthly and the average car insurance rates are $119/mo


If you’re a parent with a teenager who’s just begun thinking about owning his own car, you’re probably somewhat amused if your child thinks the only cost of car ownership is what’s written on the windshield.

He’s positive that red Camaro is just right for him because he has the $2,500 in his savings account. But eventually, he’ll find out that sales tax, car insurance, repairs, and other hidden costs are part of the deal.

They say the two things in life you can’t escape are death and taxes. That’s true, generally speaking, but where state sales taxes are concerned there are exceptions.

The following states of no sales tax:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

All the rest do. If you’re lucky enough to live in one of these sales tax-free states, Junior will escape that cost when he buys his new car.

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State Requirements for Sales Tax, Car Insurance, and Minimum Safety Standards

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Even if you live in a state with no sales tax, car insurance is still a requirement in all 50 states. New Hampshire is the exception in some cases, but the alternative financial responsibility requirement is not one that most folks can meet.

Minimum coverage is required for such things as property damage, bodily injury, and general liability. Minimum amounts vary from state to state, but you will never escape them altogether.

Of course, we adults know that beyond taxes and insurance, there is also the matter of safety and emissions inspections.

All 50 states require certain standards be met by any vehicle on the road, which means money out of pocket if your car fails those inspections.

For some reason, teens seem to forget that things break down. Even that honey of a car he has his eye on may not pass inspection.

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Enter your ZIP code below to view companies that have cheap car insurance rates.

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Car Insurance is the Most Costly Part of Car Ownership

With a new or late-model used car, even after safety inspections, repairs, and sales tax, car insurance will end up being the most costly thing you pay for.

With an older used car, that may be different if you have enough ongoing repairs to keep your mechanic gainfully employed. But at an average cost of $1,000 to 1,600 annually, your teen’s car insurance will be his biggest financial concern.

When he finds out how much it costs to insure the red sports car as opposed to a used compact, the sports car may suddenly not be so attractive. On the other hand, if his eyes are bigger than his wallet, he may just decide to buy it anyway.

If so, shopping for cheap insurance will become a necessity.

Yes, it is true that it’s a one-time deal to pay sales tax. Car insurance, repairs, and other items we haven’t yet mentioned, like gasoline and tires, are perpetual.

Once you begin down the long road of car ownership you’ll be shelling out your hard-earned cash for all these and more. So, how will your child keep up?

Like Tax, Car Insurance is Part of a Budget

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Owning a car is not a cheap endeavor, but it can be managed if you help your child think it through and make it part of a budget. Any good budget starts by asking how much net income is earned every month.

On the other side is the amount of money spent on non-negotiable items. Finally, discretionary spending is considered last.

If car ownership is a necessity for your child, due to work or school needs, that needs to be taken into consideration in his budget. He then needs to realistically determine how much it will cost to drive the car.

Car insurance does offer special incentives to teen drivers and drivers under 25 to help reduce those costs.

The following are some questions to consider in order to determine how much car can be afforded:

  • How many miles will he put on the car, and what is the car’s fuel efficiency?
  • How often will tires need to be replaced?
  • What is the likelihood of major repairs being needed for the next year?
  • How much will the insurance run?

Parents, just remember how you felt when you had your eyes on that sweet ride they were selling down the street. Remember what it was like when you found out how much it would really cost to own that car.

You may not have the heart to break the news to your child while he is gazing lovingly at his dream car, but you’ll have to tell him sooner or later. Just go easy on him.

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Average Monthly Car Insurance Rates by State