Please come back in 60-90 days to share the outcome. I’m genuinely curious. I understand why you and some people are confused, and even some tax assessors. The law is just poorly written (but with the original intention, you are meant to be double taxed). I can predict that you will get a bill from Toyota you will be unhappy with. They’ve gone through this hundreds of times. You won’t be able to fix this with Toyota. Either you give up or try to fight and get refund from Texas tax office directly. It will be a tough battle. This guy (Help with Taxes in Texas - #14 by mrsmith) got lucky and won. I personally think the tax office misinterpreted the law and gave him refund in error but you might be able to win it like him. I’m linking it to give you a chance to do the same, but I think the chance is low.
I spent ~2 hours reading laws and even attorney general’s opinion letter from 1959! LOL
- True lease: You pay sales tax for leasing company at the start (unless leasing company eat it up but why would they), and you pay your own sales tax later. This is what people have been experiencing by default. Stated in law (d)
- Sale disguished as lease: so this is to combat sketchy deal where you do something like setting residual value to $1000 to get favorable business tax incentive, etc from leasing vs. purchase. This basically turns sketchy lease to sale for tax purpose. Law (b) and (c) are applicable. At the end of day, (c) makes sure you get offset and the final sales tax come out similar to what you would be charged if you just purchased the car outright. Language describing this (b) and (c) are throwing people off. In the linked version below, the intention is clear. The original law makes people think about cases where end of lease purchase price is below fair market price due to uncertainty of price in 3 years, whereas the law intended to just fight the scenario residual was intended to be much lower in 3 years. “If the transaction is considered to be a sale and not a lease, as described in subsection (b) of this section, no additional motor vehicle sales tax is due at the time the initial lessee/purchaser takes title to the vehicle, provided the correct amount of tax was previously paid on the total consideration. If the correct amount of tax was not paid on the total consideration, the lessee/purchaser must pay the difference when the vehicle is titled in his name.” This part is only applicable if agreement is sale, not lease. It is sale if one of three conditions are met "the lease contained an “option to purchase” at less than fair market value or a “must purchase” clause or if the vehicle is sold to the lessee at less than fair market value" Despite the probable intention of the law, if your Prius’s residual value is few dollars lower than fair market price, you may be able to try making a case that your agreement is sale, not lease. I think that’s the only way you can win. Actually not sure how these will be interpreted for early buyout.
This version is MUCH clearer than the official law version. It’s still from gov website. Looking at both, the intention is much clearer. It would have been much clearer if law mentioned nominal value instead of saying less than fair value. Even the attorney general says it’s sometimes hard to distinguish party’s intent. There’s also a law firm guy who seems to be (possibly intentionally) misinterpret it to help people fight the tax office. You can try him/her too but it won’t be worth the fee.