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Anne
Anne, Master Tax Preparer
Category: Finance
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I am looking to transfer an auto lease into my name from

Customer Question

I am looking to transfer an auto lease into my name from someone in Michigan, where sales tax is paid only on the amount of the vehicle that is financed in a lease( from what I understand). The sales tax on a 60k vehicle (owner did have an employee discount) was broken down to $33 a month on a 36month lease, so maybe 6% tax on 30k. If I take assumption of the lease (transferred officially into my name from the leasing company), how can I figure the amount of sales tax I will be paying per month? I understand that tax is paid on the full amount, up front, on a leased vehicle in texas, but that it could be broken down into monthly payments. It seems like a simple question but the leasing company (Ally) can't give me a straight answer. Thanks!
Submitted: 1 year ago.
Category: Finance
Customer: replied 1 year ago.
The owner was paying $550 per month on the lease and giving a $3000 payment to get it down to $362.50 per month
Expert:  Anne replied 1 year ago.

Hi

I'm Anne. I've been preparing taxes for 27 years and I'll be helping you today.

I live in MI, so I know the sales tax is 6%

This is an excellent website showing exactly how to determine how much of your lease is sales tax (and in the examples given, the sales tax they use 6%).

http://www.leasetips.com/salestax.htm

If you have any questions, please post them here, and I'll be notified.

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Customer: replied 1 year ago.
Anne,Thank you for your response. If you take a look at the below information, it mentions that Illinois requires taxes to be paid up front on the total value of the vehicle. Texas taxes vehicles the same way. What happens to the amount of tax I pay when I transfer the lease from someone in Michigan to Texas? I am trying to figure out if I am going to need to pay tax on the full amount? I do not own the car, the leasing company does, but I need to register it here, so I don't know how the taxes would be figured. Please see below.Most states tax automotive leases by charging sales tax on the monthly payment and any cap reductions paid in cash.Example:Gross Cap Cost: $25,000
Cap Reduction paid in cash: $2,000
Net Cap Cost: $23,000
Residual: $14,820
Monthly Payment at 8.0% for 36 mos: $352.78
6% Sales Tax on Monthly Payment: $352.78 x .06 = $21.17
Total Payment with Tax: $352.78 + $21.17 = $373.95In 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
Plus $120 tax on cash cap reduction
Total Tax: $882.12Taxing 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.Illinois
Illinois taxes the full purchase price of the lease as though you purchased the car. The full amount of the tax is due at signing.
Expert:  Anne replied 1 year ago.

According to TX Administrative Code 3.70

" A lessee may take credit for legally imposed sales, use, or similar tax paid to another state by the lessee or the lessor on the leased motor vehicle before that vehicle becomes subject to the Texas motor vehicle use tax imposed by Tax Code, §152.022. If the lessee purchases the leased vehicle, credit will be allowed for Texas motor vehicle use tax imposed by Tax Code, §152.022, and paid by the lessee when the vehicle was brought into this state. " See Below:

http://texreg.sos.state.tx.us/public/readtac$ext.ViewTAC?tac_view=5&ti=34&pt=1&ch=3&sch=F&rl=Y

So, in this case, the lessor in TX would be able to take credit for the $882.12 sales tax that was already paid in MI.

I hope this helps

Expert:  Anne replied 1 year ago.

I see you read my answer but didn't rate it,so I wanted to follow up with you.

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