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Sales Tax on Leased Car or Vehicle

February 15th, 2011 Leave a comment Go to comments

One of the biggest decisions that one can encounter is what to do when you need a vehicle.  Purchasing a car is a huge and expensive commitment.  Often, individuals decide to lease a car instead.  But certain charges, fees, and taxes can often catch a consumer by surprise.  For instance, even when leasing a car, a consumer will still be required to pay sales tax.

Sales Tax is one of the unexpected details that often shock new car leasers.  These taxes differ between states, but some general principles and options remain constant.

In most states and in Canada, state and local taxes will be charged on any down payment made towards an auto lease.  Since the down payment is paid when the lease is signed, these taxes are also due at that time.  Alaska, Oregon, and New Hampshire are the three exceptions, since these states do not charge sales tax on vehicle purchases at all.

Sales tax is also charged on the amount of the lease.  The method for calculating and paying these taxes is what differs so greatly between states.

In certain US states, the taxes on the full lease amount are due up front.  This is the case in Texas, where the sales tax is calculated based on the full value of the car.  Therefore, the same sales tax will be paid whether the car is being purchased or leased.  Illinois applies the same rules, but the tax amount can also be rolled into monthly payments.  In Arkansas, Maryland, Minnesota, and Virginia, the sales taxes are calculated from the full sales price of the vehicle as well.  These states do not necessarily require an up front payment.

In Ohio, taxes are due up front based on the capitalized lease cost.  In states including New Jersey, taxes are paid at signing, but can be calculated either based on the car price or the sum of all lease payments.  In New York, taxes are paid at signing but must be based on the total lease payments.  In states such as Nebraska, taxes are applied to the monthly lease payment and therefore paid monthly.

Various states also apply taxes to fees, such as the lease acquisition fee.  A number of states don’t tax fees at all.  Certain states have a maximum limit to the total amount of taxes that can be paid.  A tax credit can be given in a number of states for trade-in vehicles.  It is also important to know that if you move, your sales taxes may change.  They can increase or decrease and can even require a cash payment in certain circumstances.

No matter how taxes are calculated, they can amount to a considerable sum of money.  When due up front, this can be quite a surprise to potential leasers if it is not expected.  The best path to take is to research well, so that you know what you can expect from your car dealer in your state.

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