States have long wielded their formidable taxation powers in new vehicle sales transactions: They generally charge anything from $10 to nearly $200 to register a vehicle and up to $70 for a title. The combination of state and local sales tax rates can climb to a maximum of 10 percent or more in places like Illinois, Alabama, and Louisiana, for example, averaging 5 to 8 percent in most other states.
Aside from revenue from financing, insurance and the cars themselves, dealerships make money by handling the paperwork, especially through "document fees" that can run in the hundreds of dollars per vehicle. Dealers say they need the fees to cover their administrative expenses. Consumer advocates say the fees are more about profits than paperwork.
One aspect is beyond dispute: Back-end revenue of all kinds -- including finance, insurance, warranties and administrative fees -- has become more important to dealers.
Profits from the sale of new vehicles have dwindled in a brutally competitive market. That means car buyers must be ready to deal with some determined adversaries at this stage.
Not every detail at the back-end is subject to negotiation, of course. The taxes and registration fees listed on these documents are basically pass-throughs, for example. Dealerships simply collect them and hand them off to the state.
The destination fee isn't considered negotiable either. It's a blanket fee covering transportation costs and is usually the same for all the brand's models, whatever their assembly plant or point of entry into the U.S. But consumers should make sure that the "destination fee" doesn't mysteriously reappear as a "shipping fee" in the paperwork, leading them to pay for their vehicle's transportation twice.
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Here's a quick guide to help avoid being taken advantage of on back-end fees.
These so-called "Monroneys" are the main guide to the basic cost of the vehicle. In 1958, Almer "Mike" Monroney, an Oklahoma senator, pushed through the legislation requiring detailed sales stickers as a way to prevent dealership abuses. Both Detroit automakers and the National Automobile Dealers Association backed the law.
For consumers, the Monroney is the best way to verify the manufacturer's suggested retail price and identify features that the automaker added to the vehicle before its arrival at the dealership.
Dealers often provide their own sticker, known as an addendum, as well. It lists all the accessories added to vehicles after they reach the store. It may also include some enigmatic entries such as ADM ("Additional Dealer Markup") or ADP ("Additional Dealer Profit)," Ostroff said. These fees are fair game for consumers to negotiate out of the deal.
Buyers may even run into an official-looking "market price" sticker, said Michael Royce, publisher of www.beatthecarsalesman.com. A dealer might put a comparatively high price on the vehicle and post it on a sticker next to the Monroney, arguing that it's a hot-seller. But that doesn't mean you have to pay it.
This basic tax runs from nothing to more than 11 percent. In some parts of the country, the rate includes taxes that local jurisdictions levy. While there's little to negotiate here, consumers can at least verify that taxes are correct for their vehicle.
"They should know that they can find a lot of the tax and fee information on their state's department of motor vehicle website," Ostroff said. "Nine times out of 10 they will find a table or other information indicating what the charges should be."
Depending on where you live, you might be able to subtract the value of your trade-in or the amount of your rebate from the price used for sales tax calculations. Most states don't tax the amount of your rebate, and a few don't tax the amount of the trade-in. Residents of Kentucky fare especially well: Their state doesn't tax trade-ins or rebates.
Alaska, Oregon and New Hampshire don't have sales taxes or their close cousin, the excise or gross receipts tax. But it's hard to beat the system by buying the car outside your home state.
States usually impose their own taxes on cars bought elsewhere. Connecticut, for example, has customers pay a 6-percent sales tax at the time of registration if they didn't buy their car from a dealer within the state.
It's not uncommon for the document fee to run as high as $400 or $500 -- which is a significant amount of money, at times equal to the amount of manufacturer incentive.
"This fee has become acceptable, but it is really a way to get more profit," Royce said.
Since it's applied after the vehicle price is set, it doesn't even boost the amount of commission that the dealership owes the salesperson. A dealership selling 500 new vehicles a year reaps a tidy $100,000 in profit by charging a $200 document fee. Most states don't place a limit on how high this can go either, with just a handful of states capping it. West Virginia limits it to $30 and Ohio to $250, for example.
The fees ostensibly cover a range of administrative activities, including the processing of vehicle titles, registrations and plates, and checking recall and vehicle histories on trade-ins, among other things, dealership organizations say.
But the fee's role in boosting revenue became clear in Washington state in 2009. That year, dealers successfully lobbied legislators to boost the maximum fee from $50 to $150, in part to counter the loss in revenue from a 30 percent drop in sales.
Consumer advocates suggest buyers ask the dealership what its document fee is and then factor it into their negotiations. For instance, if the fee is $400, and they were planning to pay $16,000 for a vehicle, they could bargain for $15,600.
This charge is basically for cleaning the vehicle, according to the Better Business Bureau. Check to see whether the sticker price includes "dealer preparation" or "recommended manufacturer pre-delivery service." If it does, then there should be no additional charge for dealer prep, according to the bureau.
Still other charges loom even after you've negotiated a price. Royce recommends that consumers think twice before buying any add-ons.
The problem is often that buyer and seller typically discuss monthly payments – not pricing, he said. That takes the focus on off the details. So he urges buyers to "read everything" during the negotiations and the preparation of the sales documents. "If you see something you don't like, question it," he said.
If buyers are in any doubt about a charge, they should suspend the negotiation and head home to do more research – even if the salesperson warns that the car they want might be sold out from under them.
"You should take all the time you need," Ostroff said. "When you come back, the car will almost certainly still be there."