As you may know, in NY, when you transfer a lease, the buyer will have to pay sales tax on the remaining payments.
So I was thinking, in a case where the seller is offering a cash incentive to take over a lease, it would make more sense that they prepay down the lease with the incentive, so the buyer has a lower remaining payment, effectively boosting the incentive by ~8.875%, is this correct?
The contractual payment doesn’t change on a transfer.
Does NYS tax based on the remaining total balance of the lease, or based on the remaining term * contractual monthly payment? If the former, then wouldn’t paying down the lease by the original lessee reduce the total balance and thereby reduce the sales tax due on the transfer?
If there are less than 12 months remaining, the transferee is taxed on the monthly payment. If there are more than 12 months, tax is imposed up-front on the total of the remaining payments.
Thank you for this. So in this scenario, asking the original lessee to apply the cash incentive as a prepayment on the balance of the lease would in fact reduce the transferee’s tax liability.
That’s one of those “it depends” situations and how the payments are recalculated upon the signing of the new contract. I wouldn’t bank on it.