Lease Sales Tax Texas with Trade-In

jeanette512

Hi gang-

Sorry to beat this dead horse but I cannot swallow this pill. I'm hoping others will have some experiences to share.

State of Texas (and some other states) charge sales tax on the full lease amount when you lease a vehicle as opposed to sales tax on the monthly payment. I get this...no issue with this practice from me.

Here is my issue... some (not all) local dealers interpret the full lease amount as the agreed upon new vehicle price without regard to the trade-in. I paid tax on that trade-in when I bought it, wouldn't that be considered double taxation? Why do I get the benefit of reduced sales tax on a sale but not a lease? And I don't believe the response that I don't "own" the vehicle because if I want to cut a the big check for the residual right now, I do own it without any more taxes.

So in this scenario, not only are Texans paying tax on the entire life of the vehicle, they are also paying double tax on their trade-in. Let's look at a very simple example:

$40,000 Lease
$30,000 Trade-In
61% residual / 0 MF / 36 month lease

1. Total sales tax paid in other states (6.25%) for lease $350 (paid monthly over 36 months)
2. Total sales tax paid in other states (6.25%) if entire lease was paid (e.g. residual is 0) $1,875
3. Total sales tax paid in Texas (6.25%) under current interpretation $2,500
4. Total sales tax paid in Texas (6.25%) if trade-in was considered $1,875

If you notice that scenario 2 and 4 are the same amounts, I believe this to be the correct interpretation of the tax code. Fine, I live in Texas, I have to pay for the tax on whole lease up front instead on only 39% (in this example) but give me my trade-in.

Any experiences, insights, proof?

kyfdx

jeanette512 said:

Only issue I see is if “lease company purchased vehicle before I leased it”. Doesn’t local [make] dealer own vehicle and then when I lease it the sales transfers to [make] Financial Services? 

It appears that the bank has to agree to use your trade-in on the transaction. If they don't agree, you are out of luck. At least that's how I see it.

So, if the bank won't do it (and, I'll guess they don't make exceptions), then you are stuck.
I think that most banks operate this way in Texas. (unfortunately)

jeanette512

My apologies, $10,000 net trade-in. $30,000 adjusted cap cost

Michaell

Have you tried contacting the department of revenue? They might have a website that explains how this works. I can't imagine you're the only Texan who tries to trade in a car for a lease.

jeanette512

Thanks Michaell.  I have contacted the comptrollers office and they believe this practice is incorrect. They will only respond to my inquiry via email which is very unofficial and therefore dealship will not change. Dealership tells me that [make] Financial Services  does not allow them to change it.  I was really hoping some forum members could weigh in. Seems to me this could potential be be a huge class-action  if this practice has been occurring for a while.  I know I leased a car three years ago to the month and I did not pay sales tax on the gross capital but rather the adjusted capital.

jeanette512

Below is comptrollers response:

Thank you for your inquiry about motor vehicle tax for a leased motor vehicle. We are pleased to be of assistance.

 

In response, we are sending you a general information letter under Rule 3.1, Private Letter Rulings and General Information Letters.

 

Response:

 

If you are the first person to lease the vehicle and the lease company did not purchase the vehicle until after you entered into the lease contract:

 

·         With your permission, the lease company can use your vehicle as a trade-in on their purchase of the lease vehicle. Your trade-in would be part of the same sales transaction. This would reduce the total consideration the lease company pays for the lease vehicle, which would reduce the tax they owe on their purchase.

 

If you are not the first person to lease the vehicle, or if the lease company purchased the motor vehicle before you entered into the lease contract:

 

·         Your trade-in cannot be used to reduce the total consideration the lease company paid for the lease vehicle because your trade-in would not be part of the same sales transaction.

 

From, Tax Code Section 152.002(b)(5):

 

(b)  "Total consideration" does not include:

(5)  the value of a motor vehicle taken by a seller as all or a part of the consideration for sale of another motor vehicle, including any cash payment to the buyer under Section348.404 or 353.402, Finance Code. (Emphasis added.)

 

The Comptroller’s Texas Taxes webpage has additional tax information, including rules, statutes, publications, and frequently asked questions atcomptroller.texas.gov/taxes/a-to-z.php.

 

We hope this information is helpful. Please email us and reference the general information letter number indicated above if you have any questions about our response at comptroller.texas.gov/web-forms/tax-help/.

 

Our goal is to provide you with prompt, professional service. Please take a moment to complete our online survey.

 

 

Regards,

 

Tax Policy

Texas Comptroller of Public Accounts

 

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IMPORTANT NOTICE: This communication, and any attachments, may contain privileged or confidential information under the Texas Public Information Act or other applicable state and federal laws. If you have received this message in error, please notify the sender immediately and delete this email from your system.

jeanette512

Only issue I see is if “lease company purchased vehicle before I leased it”. Doesn’t local [make] dealer own vehicle and then when I lease it the sales transfers to [make] Financial Services? 

Michaell

jeanette512 said:

Only issue I see is if “lease company purchased vehicle before I leased it”. Doesn’t local [make] dealer own vehicle and then when I lease it the sales transfers to [make] Financial Services? 

When you enter into the contract, the car is technically sold to the bank, but the transactions are pretty much simultaneous, not sequential. I don't believe that makes the bank the first owner, and you the second.

And, feel free to tell us which brand of car this is.

waelk78

jeanette512
I have the same problem with Tesla as they charged me the full Tax value on my first lease. Now I am getting a new Tesla, they are not considering giving me a credit for my trade in and they want to charge me the full amount of Tax
I spoke with the DMV and the lady told me that I can request a refund from them, but good luck
I think we need to introduce a new bill and change how lease trade in is hnadled in Texas

Do you have any updates on your case?

mustangs00

Any updates on this scenario? I was told that I can receive a tax credit from my original lease to roll into my new lease as long as a stay within the same car manufacturer?

Michaell

mustangs00 said:

Any updates on this scenario? I was told that I can receive a tax credit from my original lease to roll into my new lease as long as a stay within the same car manufacturer?

That may be possible, but as you can see, the tax laws for leases in Texas seem to be a bit muddled.