Motor Vehicle Taxes

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Oklahoma levies two taxes on motor vehicles. Motor vehicle taxes in Oklahoma are both selective sales taxes on the purchase of vehicles and ongoing taxes on wealth, the value of the vehicles. This is the largest of Oklahoma’s selective sales taxes in terms of revenue generated. Together, these two motor vehicle taxes produced $728 million in 2016, 5 percent of all tax revenue in the state. As of July 1, 2017, Oklahoma charges a 1.25 percent sales tax on vehicle purchases in addition to motor vehicle taxes.

Advantages of the motor vehicle tax are:

• if used to finance roads and other transportation – which is only partly the case in Oklahoma – it can match payment for service to the benefit from the service;
• since the tax is based on the value of the vehicle, it is relatively fair to all but the lowest income taxpayers; and
• it is a simple tax that is relatively easy to pay and to collect.

Disadvantages are:

• the sales portion of the tax changes rapidly when the economy slows and people purchase fewer vehicles;
• tax revenue has not kept up with inflation or the cost of providing public services; and
• in Oklahoma, where there are few alternatives to owning a car, the tax may be a burden on very low income residents.

In 2000 voters approved a reduction in vehicle taxes, which had the most effect on used vehicles. The Oklahoma Tax Commission estimated that government revenue decreased by $50 million from this change.

Taxpayers pay an excise tax of 3.25 percent of the price when they buy a new vehicle and a lower tax rate on used vehicles (depending on the sales price). There is also an annual registration fee of $26 to $96 depending on the age of the vehicle. Taxes generally are paid to tag agents, who are contracted by the Tax Commission as collection agents. They transmit the tax to the state after deducting an administrative fee. 

Only the state collects motor vehicle taxes, which are split between the state general revenue fund (25 percent), schools (36 percent), local governments (35 percent) and several other small uses. Oklahoma does not allow additional local taxes on vehicles, nor does it limit use of these taxes to roads and bridges; both practices are common in other states.

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