How does a trade-in affect sales tax?

In many states, the value of your trade-in is subtracted from the vehicle price before sales tax is calculated, so you only pay tax on the difference. That can be a meaningful savings compared with selling your old car privately. Not every state offers this credit, and some cap it or apply it differently, for example on leases. Check your state DMV or revenue department rules, and make sure the trade credit appears on your itemized buyer's order before you sign.