FWIW I’ve leased or helped lease a lot of cars in California and I don’t think any of the deals I’ve been involved with capitalized taxes on incentives. The incentives always get applied in the “how the amount due at signing will be paid” section and any taxes on amounts paid at signing are included in the amount due at signing section.
With $17.5k in incentives the only thing that would possibly be capitalized is the acquisition fee. All of the of the other fees will be covered by the incentives and what’s remaining of the incentives will be applied to a cap cost reduction and tax on the cap cost reduction.
I’m not following exactly what you’re saying. For the sake of discussion assume that there is no cap cost reduction and the only “fee” here is the acquisition fee of $1095 which is being capitalized. IIUC, you’re saying the tax on the acquisition fee in this case would be subtracted from the incentives, so let’s say that leaves us with $17,500 - $1095*0.09125 = $17,478.92 in taxed incentives. This remaining $17,478.92 will be applied as cap cost reduction and my understanding is that at least in CA this would be taxed. If we’re doing a $0 DAS deal we’d need to capitalize the taxes on the $17,478.92 and I’m not sure how these taxes could come out of the incentives themselves (recursive situation here). What am I missing?
If the acquisition fee is capitalized, the taxes on it will be captured via tax on the cap cost reduction and tax on the monthly payment, just like tax on all of the other capitalized costs.
So in your $0 DAS example with capped acquisition fee:
Cap cost reduction: $17,500 / 1.09125 = $16,036.66
Tax on cap cost reduction: $16,036.66 * 0.09125 = $1,463.34
Total due: $17,500
Total paid via incentives: $17,500
You pay sales tax on the full amount of the taxed incentives. Using part of the incentive to pay for up front costs like the acquisition fee does not lower the tax. In your example, you would owe tax on the $17,500, plus tax on the $1,095, for a total tax of $1,697.
I was shopping for a Porsche lease for the first time after having exclusively leased other German autos in the past and several dealers that I reached out to suggested that Porsche requires that taxes and DMV fees are paid at signing and that fees can’t be capitalized. Does anyone know if this is actually true in CA?
Where you seem to be getting tripped up is that sales tax on incentives is not a separate line item on the contract and capitalizing sales tax is not a thing in CA. Incentives are essentially cash that is applied to post-tax amounts due at signing. If you need more amounts due at signing to consume the incentives you bump up the cap cost reduction and the accompanying sales tax on the cap cost reduction. Capitalizing sales tax doesn’t make sense because sales tax is applied to the monthly payment amount in CA so you would be paying tax on tax.
Ahh, ok, that makes sense. In that case, though, unlike Audi, for example, it seems like the Porsche dealers were unwilling to use the incentives to pay the tax. Are DMV fees still able to be capitalized?
I don’t think Porsche dealers would do anything differently from Audi dealers. All makes advertise their lease specials exclusive of taxes and fees since those depend on location.
If you’re doing a true $0 DAS with no incentives DMV fees can be capped, but that’s pretty rare and you’d be paying tax on the DMV fees even though they’re not taxable. In CA you always want the non-taxable fees paid using the incentives and/or cash DAS, and that’s how the deals are structured.
I wasn’t able to find a sample Porsche contract from CA with incentives, but this Audi contract is how all deals with large incentives are structured in CA. The only place you may see variance is whether the acquisition fee is capped, but that has no effect on the economics of the deal. It’s just moving dollars from one taxable bucket to another.
This deal has $13,000 in incentives and only caps the car, dent protection, and Audi Care. Everything else is paid from the incentives and the $5,750 cash DAS. Sales tax on the capped items is captured in the sales tax on the monthly payment (7.J). Sales tax on the cap cost reduction, acquisition fee, and doc fee is captured on lines 6.A.2, 6.A.9, and 6.A.13, respectively. The other items in 6.A are not taxable.
Ahh, ok, thanks for confirming and the referral. I’ll add that after @themachine explained to me in my other thread my initial post is a little inaccurate as you can’t actually capitalize the taxes but I was exchanging emails with at least 3 Porsche dealers and they all refused to do a $0 DAS deal saying Porsche required that the DMV fees, acquisition fee, and taxes like the ones paid on the incentives be paid at signing by me. I was shopping Audis as well with similar taxed incentives and all the dealers were taking fees and taxes on the incentives out of the incentives.
PFS does not like $0 DAS and it is a headache to complete the proper paperwork with PFS. Your dealer should be able to roll taxes into the payment, but most Porsche dealers will want the first payment and DMV fees upfront.
Ok, so this example along with your prior reply about “Where you seem to be getting tripped up is that sales tax on incentives is not a separate line item on the contract” was super helpful. I tried to redo my spreadsheet based on this information but I still can’t match the leasehackr calculator with my spreadsheet but now I think there may not be a way to get the leasehackr calculator to compute things the way you explained. For example, I don’t think either of the 2 options for handling the acquisition fee in the calculator would end up paying it using the incentives and cash DAS and I don’t know if unchecking the “roll upfront taxes into monthly payments” does the right thing since doing so makes the payment discrepancy even greater and seems to add that to the cash DAS. Do you know if there is a way to get the calculator to compute things the way you explained? Here’s the calculator for what I’m trying to match.
Does anyone know the details of how the $10,000 non-cash credit Porsche advertises as part of their special offer on the 2023 Porsche Taycan lease here works? I’ve been shopping around for this car and from the quotes I’ve gotten from a few dealers it appears that they are either only giving me $5,000 of this $10,000 or moving $5000 of this from “rebates/incentives” in the quote to $5000 off the sale price because the sale price they they quote is $5K off MSRP. Is this $10,000 credit something that the dealer has to optionally contribute to as well or is it all from Porsche? I’m trying to figure out if they’re holding back some of the incentive that isn’t paid for by them.
Is it a required contribution or a contribution they get paid back for? I’m curious because it’s factored into the Porsche special offer advertisement and they have verbiage about “requires dealer contribution” but from my reading of it it’s about the additional $1,370 in cap cost reduction required for that offer.
