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If you are a Massachusetts resident who is spending time in, say,  Florida this winter, be aware of this Massachusetts sales tax provision if you happen to buy a new vehicle while out of state.

Under Massachusetts law, when you trade in your vehicle towards the purchase of another vehicle, the trade in allowance is deducted from the final purchase price before the sales tax is calculated at the Registry of Motor Vehicles.  However, only vendors registered with the Massachusetts Department of Revenue are allowed the trade-in allowance.

What does this mean? Well, let’s say you purchase a vehicle for $30,000 and the dealer gives you $10,000 in trade-in allowance. If the dealer is registered with DOR you would pay $1,250 in Massachusetts sale tax when you register the vehicle after returning to the state. If the dealer isn’t registered than you would owe $1,875 as the sales tax would be calculated on the full price.

Fortunately, registration is only a click away on www.mass.gov/dor so the dealer can easily sign up and there are no fees to register. So before you buy, ask the dealership if they are registered with DOR and don’t get caught paying more sales tax than is necessary.

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