When I select the Zero Drive off option, the Total Lease Costs goes down, which is counter intuitive, since now you are rolling the fees into the lease, paying interest on the fees, so the cost should be higher.
See the below example case (Calculator Link below):
Paying Drive Offs:
1544 (drive off minus 91 Government Fees) + 23 * 271 (monthly) + 350 (Disposition Fee) = 8127
This is within $24 of the calculated $8135, so I’d assume the difference is the cents on the monthly, no displayed, but taken into consideration in the Total Lease Cost.
With Zero Drive Offs
23 * 340 (monthly) + 350 (Disposition Fee) = 8170 - 91 Government Fees = 8179 which is what is calculated.
So in fact, it looks like the monthly, in the Zero Drive Off case, is what is broken. In my own calculator (on Excel), the monthly for this Zero Drive off case is $346.83, not $340.
1544 (drive off minus 91 Government Fees) + 23 * 271 (monthly) + 350 (Disposition Fee) = 8127
This is within $24 of the calculated $8135, so I’d assume the difference is the cents on the monthly, no displayed, but taken into consideration in the Total Lease Cost.
With Zero Drive Offs
23 * 340 (monthly) + 350 (Disposition Fee) = 8170 - 91 Government Fees = 8179 which is what is calculated.
So in fact, it looks like the monthly, in the Zero Drive Off case, is what is broken. In my own calculator (on Excel), the monthly for this Zero Drive off case is $346.83, not $340.
The calculator erroneously assumes that the drive-off total would simply roll into the net capitalization cost when the customer elects zero drive-off, but that is not the case for leases where the tax is levied on the total lease payments.
In New York, tax is levied on the sum of the total of the monthly, down payment, incentives, acquisitions, disposition, and any other fees at the inception of the lease. When the calculator rolls in the original drive-off total, it rolls in the taxes and assumes that the tax is levied based on original monthly payment, which is wrong.
Now, a true zero drive-off means $0 upfront, including taxes. This means that the dealer is financing the sales tax. The calculation is tricky because the new monthly payment is based on the amount to be taxed which is also based on the new monthly payment. Example 9 in the document below illustrates one method of computing the taxes and monthly payment:
This gets more complicated as dealers may have different ways of re-computing the monthly charges.
What do you guys think is the best way to handle the monthly payment (and by extension the total lease cost) in the case of zero drive-off where tax is levied on the total lease payment?
The “tax finance charge” is the interest charge a dealer could assess for lending the sales tax which, quite frankly, I’ve never encountered when I negotiated zero drive-off leases in NY. See Pub 839, Example 9, P. 16-17, lines 1 thru 13.
We attempted to tackle the Zero Drive-off issue in our calculator update. Based on the formulas in Example 9, we recalculate the taxes on the total lease payment (with no interest charge), roll the new tax payment and other drive-off fees into the net cap cost, and recalculate the monthly payment. We hope this would resolve the issue, though the Zero Drive-off calculation has always been tricky as it varies across states.
The updated calculator is now under testing. PM me or @michael if you are interested in participating in the testing stage before the calculator is released to the public. Thank you all for your input to make this community more resourceful!
