Sales Tax on Lease Transfer Question MD/VA

tjinva

Am looking at assuming the obligations for a lease on a Mercedes M350 in MD. I live in VA. I believe that in both states, the sales tax is computed on the entire capitalized cost of the car and it is then amortized over the period of the lease.

The current monthly payment by the lessee in MD includes the applicable sales tax for that state.

My question is as to what happens if and when I have the lease transferred to my name through MB Financing: would the payments that I make have to be recomputed to include the applicable sales tax in VA? Would I receive any credit for the MD sales tax the current lessee is paying as part of his lease payments? Given that the sales tax rate is higher in MD than in VA, would my monthly payments stay the same, go up or go down?

Any guidance would be appreciated because it will make a difference in whether the deal is worthwhile.

kyfdx

Just to be upfront, this is all an educated guess.. you'd have to ask MB Financial or your local county tax collector for specifics.

The Maryland tax was all paid upfront. Even if the lessee opted to roll that amount of money into the lease, that is all they did. They "borrowed" an amount that equaled the tax that was paid. In the bank's point of view, the entire payment is just the payment. They don't remit any portion of that to Maryland to cover sales taxes, as those taxes have already been paid. So, if you assume that lease, none of that payment represents sales tax. I doubt Maryland would remit any of the tax, unless the original lessee was trading the car in on another new car in Maryland, and then they may get a trade-in credit (assuming Maryland does this).

The big question is going to be what Virginia will do. If you were the current lessee in Maryland and moved to VA, you would be able to show that you've already paid the full sales tax on a car that you already have in your possession, and possibly not have to pay more tax. But, if you assume a lease on a car that is new to you, I can't imagine that VA will not require some sort of sales tax on it. How they calculate it, I have no idea, but it may be on the current value of the vehicle.

I'm not positive, but I can't see this working out in your favor, from a tax perspective.

tjinva

Thanks for the response. I contacted MB Finance and they say that I would not have to pay any sales tax in VA but would be responsible for registering the car in VA. I am not sure that MB is correct in what they say.

I suspect that when I go to do that I will be assessed the sales tax. Am trying to reach the DMV in VA to find out what their view is about how this will be handled.

I guess it could be argued that since the owner of the vehicle is MB Finance and that ownership has not changed, the sales tax in MD should not make one liable to have to pay it again in VA. This would be akin to the situation you described where an individual who bought the car in MD and then moved to VA would not be liable. The difference is that MB Finance is a corporate entity and is not really driving the car per se. But this is just speculation on my part. I hope that whatever DMV tells me is the correct scoop.

kyfdx

Yeah.. .good luck with it. I'll be interested to see what happens, if you go through with it.

joshash1102

Any update on this case? I am in similar situation. Looking to get car lease transferred from either Oregon or California to Washington. The tax implications will help me decide which deal to finalize.

kyfdx

joshash1102 said:

Any update on this case? I am in similar situation. Looking to get car lease transferred from either Oregon or California to Washington. The tax implications will help me decide which deal to finalize.

Well.. your case is easier.

Oregon doesn't have sales tax, and CA and WA both tax the monthly payment.

If you transfer a lease from Oregon to WA, the leasing bank will start collecting sales tax on the payment, each month (9.8%?). Effectively, the payment will go up by 9.8%

If you transfer from CA to WA, the CA tax portion of the lease will cease, but as above, WA tax will be collected. The payment will go up by the difference in tax rate between CA and WA.

Michaell

kyfdx said:

joshash1102 said:

Any update on this case? I am in similar situation. Looking to get car lease transferred from either Oregon or California to Washington. The tax implications will help me decide which deal to finalize.

Well.. your case is easier.

Oregon doesn't have sales tax, and CA and WA both tax the monthly payment.

If you transfer a lease from Oregon to WA, the leasing bank will start collecting sales tax on the payment, each month (9.8%?). Effectively, the payment will go up by 9.8%

If you transfer from CA to WA, the CA tax portion of the lease will cease, but as above, WA tax will be collected. The payment will go up by the difference in tax rate between CA and WA.

I can attest to this. I leased a car when I first moved to Colorado. Sales tax in Colorado varies by county, and in some cases, by city. My original payment was something like $199/mo. After a year, I moved to a different county and town. My lease payment dropped a few bucks a month.

I would think the same would be true with your CA to WA move.

ochoshadrach

OK...similar but different problem. I assumed a lease through Honda Financial...have done this twice in the past...car coming from NJ to WA. Honda want to charge me $236 in back sales tax...as if the car was in WA for the 8 months prior to my assumption. Any ideas on this?

kyfdx

ochoshadrach said:

OK...similar but different problem. I assumed a lease through Honda Financial...have done this twice in the past...car coming from NJ to WA. Honda want to charge me $236 in back sales tax...as if the car was in WA for the 8 months prior to my assumption. Any ideas on this?

That doesn't seem right. Sales tax in NJ is collected upfront, while WA taxes the monthly payment. There shouldn't be any tax due in WA, until the first payment you made. Wasn't aware that Honda Finance allowed lease assumptions. That must have changed.

Have you talked to someone at Honda Finance, or did you just get a random bill?