This is only correct if you then pay the tax up front. As I put in my calculation method, if you are capitalizing the tax, you have to pay interest on that, as well, which is not accounted for in your method.
Yes, that’s what I was getting at. Not sure if I was clear, though. I personally could not get my Excel to do it right. So I have a field that calculates tax and amother field that I type that tax into manually that then is used in the payment calculation.
No it isn’t. I’ve worked with NY dealers for many years and all my tax calculations have always matched their’s within a penny. What do you think the factor t/(1-t) accomplishes? It’s only applicable when you cap the tax and, yes, interest is earned on the capped tax which is levied when the tax is capped in the lease. Here’s the methodology that I provided one NY Volvo dealer a few years ago as they were curious as to how I was was actually calculating the tax…
The base payment is 366.18. After capping the tax of 1036.92 and a non-taxable gov. fee (I’d have to go back and look to see what it was), the final payment I computed amounted to 403.64 which matched the dealer’s to within a penny. I guess they were surprised that my calcs matched their’s.
I only deal with NJ. I can’t speak to NY. I should have mentioned that after someone said NY and NJ are different.
Your formula for NJ fails to calculate interest on the tax, as far as I can tell.
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No it doesn’t because my formula is not applicable to NJ. The methodology for NJ is different that the methodology for NY. Trust me, I know this stuff backwards and forwards.
Not trying to start an argument or berate you in ANY way, but you attempted to correct me first and I’m just trying to help clarify based on my experience.
In NJ, when capitalizing tax, it can technically be a loop since, as I said, they charge tax on rent charge and rent charge on tax. Excel don’t like it.
In NJ: ((term x base payment)+ DAS + rebates - title/reg)x 6.625% = total tax. (Unless luxury tax applies, in which case it gets even more complicated.)
THEN, if capping tax, add total tax to the cap cost and recalculate rent charge to get to new payment.
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In my excel lease program, I have a model that computes NJ leases. I’m in Ohio and NJ taxes are computed exactly the same way that Ohio taxes are computed. I’ve done a ton of leases in Ohio and my tax calculations have always been spot on. I never encountered a loop or circular reference in excel because I entered formulas that prevent that from happening. It does require some algebra. My calculations have always matched NJ dealer calculations as well as Ohio dealer calculations. My formulas do included nested conditional statements that are capable of handling any kind of lease.
Your formula is completely different than mine and may be the reason why you’re getting into trouble. It shouldn’t get more complicated even with luxury tax if you’ve done the pre-requisite math correctly. What if DAS contains non-taxable fees other than title/reg.? Not all DAS fees are taxable as you well know.
Bob, the bottom line is to separate taxables from non-taxables… it makes it so much easier. Sometimes, it’s difficult to know just what fees are taxable and what fees aren’t in some states. That requires leg work.
Sorry if I got too nasty. I’ve read many of your posts on this website as well as edmunds and have to say I’ am impressed with your knowledge for whatever that’s worth.
If you would like a detailed explanation, please let me know. Better yet, if you have an NJ lease worksheet, please post and I’ll analyze it in detail
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That’s awesome. Thanks. I’ll PM you when I can.
Great! I’ll look for it.
I was reading the post about tax credit for trade-in and getting a bit of run around from the dealer which is making me wonder whether I am getting the full benefit rather than the dealer. Here is my calculation for the lease and trying to figure out how best to account for a $25k trade-in that yields me $8k in equity.
Pretty sure you don’t get any tax credits for trade-ins in NJ.
Rebates and other manufacturer incentives are taxed in NJ, but trade-ins are not. You already paid tax on that trade-in when you purchased it.
Rough numbers looks like $28.3k in depreciation, fees, rebates, and rent charge. If they are allowing $25k trade, then you pay tax on just $3300.
That will drop your DAS to round about $2400. Apply your equity to that (heck, I’d probably apply even less… say maybe first month plus DMV), and take a check from the dealer for the rest.
Unless the $25k is trade equity, which only serves to reduce the tax base if it is used as a cap reduction. This will lower the base payment which, in turn, is multiplied by the term. Add to this the sum of all taxable fees paid upfront to get the tax base. Multiply the tax base by the sales tax rate to determine the sales tax.
As with most fed and state gov publications, this one is poorly written. It suggests that the term trade-in credit means value of the trade-in. Trade-in credit should be synonymous with trade equity. Otherwise, it doesn’t make one damn bit of sense. If NJ allowed the tax base to be reduced by the full value of the trade-in, for which only a very small amount is equity, that would mean that the customer ends up getting a tax credit on a substantial portion of the depreciated value of the vehicle (not to be confused with lease depreciation). NJ would be losing a lot of sales tax revenue if they engaged in that kind of practice. Every single NJ dealership I’ve dealt with only allows the trade equity to be used to reduce the tax base, not the full amount of the trade-in value.
Sorry, but then you have been getting screwed. I am 100% positive on this, as I have done it countless times. On a purchase, you have paid the full tax, period. Doesn’t matter if you paid in cash or if the bank paid on your behalf and you are paying them back. Why should it matter? The money is paid regardless, and NJ has their full tax in hand. They aren’t losing out on anything.
Let’s stick to leasing… not purchasing. What happens in those instances where the traded car was leased in another state that levies sales tax on the monthly payment streams? How does NJ collect tax on a car registered in NJ but was initially leased in another state? Can you send me or post a NJ lease agreement of NJ lease worksheet that includes a trade-in in support of your claim? I’m now wishing I had kept mine. I dump them after two years.
Doesn’t NJ tax on only the monthly base payment too, but just collects it all upfront?
NJ levies sales tax on the sum of the base payments plus tax on all taxable fees paid upfront. The base payment excludes capped non-taxable fees.
can’t speak to what happens when trading cars where tax has been paid in another state.
I only have 2 examples I can think of where I did this on a lease. The one pertinent one I can’t locate the contract for (figures). The one I do have isn’t exactly applicable because the loan I had on the trade was unsecured, so while I owed money, the dealership did not have to pay the bank directly. BUT, that does sort of illustrate my point in a way. Why would NJ care where their tax money came from?
Ahh… got it. https://www.state.nj.us/treasury/taxation/mvleasetrans.shtml
2nd bullet: The portion of the lease payment attributable to the payoff of a prior loan on a trade-in vehicle (negative equity) is not included in the tax base.
Your posted reference is from 2005. My posted doc is from 2017 which should supersede your’s. If I lease a car in NJ and pay sales tax as I’ve described and, three years later I decide to trade it. The dealer values the trade at 20,000 for which I have 3000 equity. So, you’re telling me that 20,000 will be deducted from the sell price of my newly leased car thus reducing my tax base considerably. This could mean that the total taxes paid on the old lease is less than the tax benefit I would receive on the new lease triggered by a lower tax base. That doesn’t make any sense. I think we better agree to disagree. I may have a definitive answer in the near future.