Yes you do. It really depends on which state you reside in during the transaction and which state you decide to register your newly owned car in. When you buy a used car, regardless if it was from a dealer or from a private party, you must register the car in your name and pay the respective car tax at the DMV. Because tax rates differ by state, the total taxed amount depends on which state the transaction takes place. For instance, New Jersey taxes by the market value of the car, whilst New York issues the standard state sales tax. Some states are stricter than others regarding their sales tax rules based on transactions like cars. As for where the taxed money goes is concerned, the private party receives none of it, or else both parties would run the risk of fraudulent behavior. The money goes directly to the state in which the car is registered by the DMV. There is only one way to avoid sales tax on a newly acquired car, and that is if and only if the car was a free gift.