What is not taxable in a vehicle sales transaction?

• A. Finance Charges, Insurance Charges, and SMOG certificate fee (paid to the state)
• B. Document preparation fee
• C. Registration fee
• D. License plate fee

Answer: (A)

The amount of sales tax on a vehicle sale is based on the price of the vehicle itself, not on costs that are outside the sale price. Financing charges and insurance are costs tied to financing the purchase or insuring the loan, not part of the vehicle’s purchase price, so they aren’t tax­ed. The SMOG/emissions certificate fee paid to the state is a government processing fee, not part of the sale price, so it isn’t taxed either. The document preparation fee, registration fee, and license plate fee are handled as part of the transaction or state processing charges and are included in the tax calculation, so they are taxable. That’s why the items listed as not taxable are finance charges, insurance charges, and the SMOG certificate fee.