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      03-21-2013, 08:03 AM   #1
CptSlow
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Sales Tax when Buying Out a Lease

I looked at a payoff quote on my lease from BMWFS. I'm a little over half way through a 36 month lease. The payoff quote shows no sales tax. I'm trying to figure out if buying the car out equates to a refinance, hence no sales tax, or if I would be responsible to pay it on my own.

Salesman doesn't seem to know. BMWFS won't commit....

Does anyone have any experience with this?
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      03-21-2013, 08:25 AM   #2
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In most states, you would pay sales tax on the buyout price. Since you have only paid on the down payment and the lease payments made so far, that would make sense.
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      03-21-2013, 08:40 AM   #3
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Originally Posted by DAC17 View Post
In most states, you would pay sales tax on the buyout price. Since you have only paid on the down payment and the lease payments made so far, that would make sense.
That's kinda what I was thinking....

I'm thinking though since it show's it as a "payoff quote" though that maybe not. Cause if you were to pay off a car loan early, you certainly wouldn't pay sales tax on an early payoff.
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      03-21-2013, 08:41 AM   #4
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Plan on adding sales tax unless you're in a state that makes you pay tax on the whole purchase of the car in your lease. I'm not sure what happens in those states. BMW FS does a good job staying out of this because when you do a buyout, you pay tax at the DMV when you go to transfer title. BMW doesn't collect it, therefore it's not part of your "purchase" price.
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      03-21-2013, 08:52 AM   #5
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Sales tax is always charged at lease initiation. Typically it is rolled into your lease payment as part of the Net Cost. You can opt to pay it as part of your up front cost, but most do not because leases typically end early. Check your contract.
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      03-21-2013, 09:23 AM   #6
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Your payoff amount $$ value looks lower without taxes in the number. Most companies in the US dont include tax into final price ... You get a price before tax which is annoying as fuck to me. In Australia it's all in the total price which is great cause there's no bs you know what your total outlay is. Just my opinion
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      03-21-2013, 09:27 AM   #7
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Dammit.
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      03-21-2013, 09:40 AM   #8
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      03-21-2013, 10:44 AM   #9
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It varies by state but I think you generally always have to pay sales tax on the residual if you are buying at lease-end. This is because you are buying the car from BMWFS (lessor), which is a taxable event because it results in a name change on the title. In most states, that doesn't really equate to double taxation because during the lease term, you've only paid sales tax on your payments, not the residual.

If you are unlucky enough to live in Illinois or Texas (like me), you pay FULL sales tax at lease initiation AND pay tax on the residual again if you buy the car at lease-end. That's why they offer Owner's Choice financing here, which I just did for the first time on my current M3. It's basically just a way to avoid that double taxation by structuring it as a purchase from the beginning so that purchasing at end of term is not a taxable event (because my name is already on the title).
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      03-21-2013, 10:58 AM   #10
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Quote:
Originally Posted by CptSlow View Post
Dammit.
You're telling me. The man collects 9.8% here in Seattle for cars.
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      03-21-2013, 11:41 AM   #11
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I just leased a new E class for my wife. I can tell you with 100% certainty tax is included in a lease payment. It has to be treated as a vehicle sale.

Basic calcs:

[(Net Cost - Residual) / Term]
+ [(Net Cost+Residual)*Money Factor)]
+ [Tax on sale price/Term]
= Monthly Payment

Net Cost is your negotiated purchase price minus any down payment (excluding dealer fee and 1st month payment).

Hope this helps.
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      03-21-2013, 12:22 PM   #12
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Quote:
Originally Posted by M3Carbon View Post
I just leased a new E class for my wife. I can tell you with 100% certainty tax is included in a lease payment. It has to be treated as a vehicle sale.

Basic calcs:

[(Net Cost - Residual) / Term]
+ [(Net Cost+Residual)*Money Factor)]
+ [Tax on sale price/Term]
= Monthly Payment

Net Cost is your negotiated purchase price minus any down payment (excluding dealer fee and 1st month payment).

Hope this helps.
Again, this varies on state.

In California, you pay sales tax on the price of the buyout, since tax is not included (in it's entirety) in the payment.
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      03-21-2013, 12:38 PM   #13
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Quote:
Originally Posted by BCA View Post
It varies by state but I think you generally always have to pay sales tax on the residual if you are buying at lease-end. This is because you are buying the car from BMWFS (lessor), which is a taxable event because it results in a name change on the title. In most states, that doesn't really equate to double taxation because during the lease term, you've only paid sales tax on your payments, not the residual.

If you are unlucky enough to live in Illinois or Texas (like me), you pay FULL sales tax at lease initiation AND pay tax on the residual again if you buy the car at lease-end. That's why they offer Owner's Choice financing here, which I just did for the first time on my current M3. It's basically just a way to avoid that double taxation by structuring it as a purchase from the beginning so that purchasing at end of term is not a taxable event (because my name is already on the title).
The variation is wide. Typically the plate associated with the registration on the car is not yours but that of the leasing company-still has your name associated with it. You pay it off get the title and now must register the car in your name. This process is very specific by state and depends also on how the leasing company handles the transaction. Some collect it at payoff, some do not. In PA I have dealt with a company that paid the tax and one that did not. If you are buying it from BMW you do have a small window to defer the tax payment - until the current registration is due (PA only) - while not advised you do have the title and the fee is technically paid until the renewal date. The tax is due at the time of purchase.
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      03-21-2013, 02:36 PM   #14
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Why are you buying it out early?
If you wait till the last 3 months, BMWFS will sell the car to a dealer at auction price. If you have a cool sales person, they can make an easy $1,000 and you could save a few thousand.

.
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      03-21-2013, 03:59 PM   #15
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Quote:
Originally Posted by BCA View Post
If you are unlucky enough to live in Illinois or Texas (like me), you pay FULL sales tax at lease initiation AND pay tax on the residual again if you buy the car at lease-end. That's why they offer Owner's Choice financing here, which I just did for the first time on my current M3. It's basically just a way to avoid that double taxation by structuring it as a purchase from the beginning so that purchasing at end of term is not a taxable event (because my name is already on the title).
Yea, tell me about it. I did the owner's choice on my last 335i. With Porsche they get around it by using tax credits they get from lease turn ins. If you re-lease with Porsche Financial, you pay no tax on the new car as long as the credits are available. Nice way to keep you in the lease loop.
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      03-21-2013, 05:44 PM   #16
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Quote:
Originally Posted by kitw View Post
Again, this varies on state.

In California, you pay sales tax on the price of the buyout, since tax is not included (in it's entirety) in the payment.
Yep. I concur. I purchased my 'ol ZHP after the lease was over; paid the sales tax just like everyone else did in Calif.
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      03-21-2013, 10:59 PM   #17
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You will have to pay the sales tax, they just haven't told you yet. Been there done that many times - it always sneaks up on you!
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      03-22-2013, 07:27 AM   #18
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Quote:
Originally Posted by aus View Post
Why are you buying it out early?
If you wait till the last 3 months, BMWFS will sell the car to a dealer at auction price. If you have a cool sales person, they can make an easy $1,000 and you could save a few thousand.

.
I'm not buying it out early. I'm actually considering selling it and was wondering how it might work out if I did.

As for the rest, if I keep it at the end of the lease, you're 100% correct about trying to get a "deal".
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      03-22-2013, 08:15 AM   #19
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Quote:
Originally Posted by CptSlow View Post
I'm not buying it out early. I'm actually considering selling it and was wondering how it might work out if I did.

As for the rest, if I keep it at the end of the lease, you're 100% correct about trying to get a "deal".
The best way to sell a leased car is to do it through a dealer. In most states you pay sales tax on the buyout price. Thus when selling to a third party, you would have two taxable transactions back to back. The only two entities that can execute the buyout are the lessor and a BMW dealer. Your 3rd party buyer can't purchase directly from the lease company. A dealer is tax exempt which allows them to purchase the car from the leasing company tax free. I have gotten dealers to do the transaction for free if I bought another car from them. I have also paid them up to $500 to conduct the sale when I didn't buy another car. The dealer takes on some liability for doing this (whatever the state law holds them to for car sales). An added bonus for the buyer is that the car can get a CPO warranty through the dealer.

Obviously you need to be sure you get paid the difference between your residual price and the price you sell the car to the third party. Don't let the dealer take this from you!
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      03-22-2013, 08:34 AM   #20
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In Cali, you have 10 days to sign the car over to someone and not get charged tax.
This way, you can buy the car, and sell it right away and there's not tax to you.

I have personally done this a few times.
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      03-22-2013, 10:34 AM   #21
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When I bought out a lease on an earlier car in Texas, I was hit (quite unexpectedly!) with sales tax on the buyout amount. However, my lease payments did NOT have sales tax charged on them when I was making payments, which was an interesting surprise since when I was living in California, payments DID have sales tax added onto them.

But I believe with BMW and most other places, the payoff quote is only what you owe the lessor, not the gubmint.
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      03-23-2013, 12:23 AM   #22
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In California you would pay sales tax on the buyout price when you go to title the car at the DMV.
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