I was playing around with deconstructing the “special offer” Porsche is advertising on a 2023 Porsche Taycan lease here using the leasehackr calculator and was able to get all the numbers to match when excluding taxes which is how they publish their offers. The advertised offer includes $17,500 in taxed incentives as well as $7900 cap cost reduction. When I attempt to include taxes and capitalize taxes on the taxed incentives and cap cost reduction the monthly payment that the leasehackr calculator shows me is about $3.50 higher than what my own spreadsheet calculates and I’m curious to understand this discrepancy because I really want to make sure I understand how capitalizing taxes on taxed incentives and cap cost reduction works. Here’s the leasehackr calculator link. The discrepancy I see is as follows (leasehackr calculator / my spreadsheet):
Depreciation: $590/$587.19
Rent Charge: $480/$479.87
Monthly Taxes: $98/$97.37
At first glance I thought this might just be a discrepancy due to rounding but that would mean the leasehackr calculator is rounding the depreciation charge to the nearest ten which I thought would be unlikely and also not consistent with how the monthly taxes seem to be rounded. My understanding is that in CA the taxes on the taxed incentives and taxes on the cap cost reduction would directly factor into the depreciation and rent charge as follows:
Adjusted/net cap cost = MSRP - (Taxed Incentives + Cap Cost Reduction) + ((Taxed Incentives + Cap Cost Reduction) * Sales Tax Rate)
Depreciation = (Adjusted cap cost - (MSRP * Residual)) / months
Rent Charge = (Adjusted cap cost + (MSRP * Residual)) * MF
Monthly Taxes = (Depreciation + Rent Charge) * Sales Tax Rate
Can someone please confirm or correct my understanding of how to correctly calculate capitializing taxes on taxed incentives and cap cost reduction?
There are no fees being capitalized just as in the calculator link I shared. The acquisition fee is just filled in because the calculator fills it in but it’s selected to be paid upfront, i.e. not capitalized. I’ not sure what paying fees out of the incentives would mean either.
Its gotta be due to the tax on the acquisition fee going inti the cap cost. Your depreciation amount is off by amount $101 dollars, which is about spot on for the tax on $1095
Ahh, ok, that could be it. The lease term is actually 39 months and I’m assuming the depreciation amount discrepancy you’re talking about would be (590 - 587.19)*39 = $109.59 as opposed to $101. The tax on $1095 at 9.125% would be $99.91 so it’s close to $109.59 but still off by $10 or so.
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.
