OP brought a good topic. Instead of purchase or lease make more sense, OP asked if it is right to charge sales tax at the interest of a lease.
I do not have answer for that but can confirm that in California purchases do not charge tax at interest but leases do.
I am also interested to find answer
Your math doesnât check out.
How can you pay 1k/mo when the new car is 100k, RV is 50k? The total payment is 36k.
These are just made up numbers. How can you have a huge negative money factor (yes, you pay less tax in a lease when a MF is negative, and more tax in a lease when the money factor is positive).
Yes, I agree. I am not trying to argue that lease doesnât make sense. You definitely mitigate the risk of high depreciation by leasing, among other benefits.
I was trying to confirm (and now I know the answer) that in a lease, conceptually you are paying more taxes compared to a purchase/trade situation. I wonder if this is something that can be challenged in court down the road.
I see finance articles suggest leasing have tax benefits, but this may not be true, depending on the personâs situation. In a high MF environment like we are now, lease may lead to substantially more taxes for the same deal, at least conceptually (in reality you get protected depreciation, of course).
Yes, for the states where trade-ins donât get the tax credit, of course leasing will lead to less tax (unless the MF is sky high).
Buying outright you pay all taxes upfront versus a state that pays taxes monthly based on lease payment. Sure, if you trade in your purchased car after three years and get a tax break on value of the trade you might pay less net tax over 3 year period, but then you get to pay more tax on the new car. You have also paid much more each month for three years on the purchase, and probably underwater when trading. If you plan to get a new car every 3 years, leasing is the way to go to avoid being underwater. You need to focus on total cost and not fixate of just the taxes.
On what basis? Because you donât like how your state taxes leases?
I tried to initiate a conceptual discussion, not a practical discussion.
One should not make a decision on leasing vs buying simply based on this, of course.
Often times vehicles have actual sales prices that are significantly below the lease end residual.
The real answer to the question of if you pay more taxes, even after factoring in sales tax trade in credits, is that it varies on a case by case basis.
The states should not have the right to tax the interest.
When you pay interest in a mortgage, you write it off on taxes.
In all other purchases that you pay a interest, whether itâs a car finance, a furniture finance, or a credit card debt, the interest is not taxable.
Challenging improper taxation is one of the key reasons this country is found in the first place.
Youre paying use tax on a rental. You donât own the vehicle and youâre not paying interest on a loan.
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Like I said above, leasing have many benefits, and the market conditions at the beginning and end of the deal will make larger difference than tax itself, so the leasing vs buying decision will not have a one-fit-all answer.
I merely tried to discuss this issue conceptually.
Yes thatâs the basis of how states would justify the tax. They treat the banks as a sales business rather than a finance service, but I would argue the nature of the business is more of a financial service. My argument may not win but is not pointless.
Anyway, challenging this is a long shot but I hope to bring up some discussion, that at least everyone has a clear image about how we are taxed in a lease deal.
You are the one thatâs only looking at one aspect (that doesnât really matter) when you need to look at the overall numbers
There is no such thing as negative MF.
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Most states are taxed on the monthly payment. When there is no or every little depreciation, do consumers complain that they arenât paying taxes on that portion?
Thereâs a lot of things states shouldnât have the right to tax
The law says you pay sales tax on the lease payments. The law does not care about what makes up the lease payments. If you do a true zero drive off, and roll the DMV fees into the lease payments, you pay tax on the DMV payments, which otherwise are not taxable.
Do you object to paying sales tax on labor when you go to a restaurant? Labor costs generally are not subject to sales tax, but when you go to a restaurant, much of the cost of a meal is labor, which you pay sales tax on. You cannot ask to separate out the labor charge, and only pay tax on the rest. The law says you pay tax on the full cost of the meal, just like you pay tax on the full lease payment.
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Not in real world, but clearly negative MF exists in your imaginary numbers.
Well⌠this is so irrelevant and such a poor analogy.
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Go take a look at an EQS lease and youll see plenty of $100k+ vehicles with lease payments under $1k/mo and a sales price after 3 years that would easily be 50% of msrp. They fit right into his example and would be prime examples of where even with a trade in tax credit, youâd end up paying a lot more in tax on a purchase than a lease.
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You have to follow the basic logic:
Assuming leasing and financing get the same selling price, before you can look into tax.
Those EQS examples all got 18%, 20% off the sticker price, and then $10k, 12k incentives.
Then you cannot assume the buyer would pay the $100k full prices. Otherwise the buyer is the loser in so many aspects, not just tax.
BTW in other markets the EQS are easily 25% off, and 30% off in many EQE cases. It seems MB is being ridiculous setting up some of their MSRPs.