Sales Tax on Leases
Most states tax automotive leases by charging sales tax on the monthly payment and any cap reductions paid in cash.
Gross Cap Cost: $25,000
In addition to the tax on the monthly payment, you must pay tax on the $2,000 cash cap reduction payment at signing:
$2,000 x .06 = $120.
Total Tax Paid:
$21.17 each month for 36 months = $762.12
Taxing the payment stream on a lease results in significantly less tax than if you were to purchase the same vehicle. In the above example, the tax on a purchase would be:
$25,000 x .06 = $1500 or 70% more tax than the lease.
Note: States that tax the monthly payment stream generally exclude the value of any trade-in from sales tax.
Not all states tax leases this way (be sure to check with a local tax collector's office to find out how your state taxes automotive leases). Below are the exceptions.
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