Indiana does not set a separate vehicle tax: vehicles fall under the general sales and use tax, and the Department of Revenue's Sales Tax Information Bulletin #28S explains how the price is worked out. The May 2026 edition replaced the April 2023 version and added guidance on 2026 restrictions on watercraft and cargo trailer purchases by nonresident entities.
This guide focuses on the parts that change what a buyer pays: the rate, the dealer's role, rebates and discounts, and the trade-in rule. The bulletin is non-binding guidance, so the statutes it cites control.
The bulletin says all sales of motor vehicles and trailers purchased in Indiana are subject to Indiana sales and use tax unless a statutory exemption applies, including sales where the buyer plans to title the vehicle in another state. It refers to the "normal 7% rate." If you buy from a registered Indiana dealer, the dealer must collect the sales tax and give you a completed Form ST-108 (or ST-108NR) showing the tax was paid.
If the vehicle will be moved and titled in another state or country within 30 days of the sale, the other state's rate may apply instead of the normal 7%; the dealer still collects the tax and remits it to the Department of Revenue. The bulletin points to Sales Tax Information Bulletin #84 for that rule.
What matters is whether the dealer receives the money. A manufacturer's rebate is not an allowable deduction from the taxable selling price if the dealer receives payment for it, as shown on the purchase agreement; it is treated as a form of payment, and the bulletin's examples show it does not reduce the taxable price even when the manufacturer pays it directly to the customer. By contrast a manufacturer's price reduction and a dealer's price discount are deductible, because the dealer does not receive that amount as consideration.
| Our illustration at 7% | Taxable price | Tax |
|---|---|---|
| Bulletin example: $20,000 price, $2,000 rebate kept by customer or assigned to dealer | $20,000 | $1,400 |
| $20,000 price reduced by a $2,000 manufacturer price reduction | $18,000 | $1,260 |
| $30,000 price with no deductions | $30,000 | $2,100 |
The first row follows the bulletin's example: the sales price is $20,000 whether the customer keeps the rebate or applies it as a payment. The other rows are our arithmetic.
The deduction for a trade-in applies only to a like-kind exchange. The vehicle or trailer being traded in must be owned and titled in the name of the customer, and a motor vehicle must be traded for a motor vehicle (a trailer for a trailer). A trade of a motor vehicle for a trailer, or a motorcycle for a car, is not like-kind (the bulletin's one exception: a motorized recreational vehicle traded for a non-motorized one counts as like-kind). The two parties must each own the property before the exchange, and a married couple is treated as one person, which matters when one spouse's vehicle is traded on a purchase in the other's name.
| Our illustration at 7% | Price | Trade-in | Taxable | Tax |
|---|---|---|---|---|
| Like-kind trade-in | $30,000 | $10,000 | $20,000 | $1,400 |
| Sold your car elsewhere and used the cash | $30,000 | none | $30,000 | $2,100 |
Debt owed on the traded-in vehicle is not treated as consideration, and negative equity rolled into the new loan is not part of the taxable price. If the trade-in is worth more than the purchased vehicle, the taxable consideration is treated as zero. The second row reflects the bulletin's rule that selling a vehicle to one dealer and buying at another is not a like-kind exchange.
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