1.25% is my expected rate. One of the other hackers here can give more accurate response though.
my understanding is GM financial gets a Texas credit when a lease is returned to them, since the initial lease is taxed fully.
Below is Gemini response when asked the question, it seems logical, clear and accurate to me… however I haven’t done much research on the topic.
This mechanism is known technically as the Fair Market Value Deduction (FMVD).
While dealerships often present this as a “promo” or “coupon,” it is actually a specific accounting tool allowed by the Texas Comptroller that lenders (like GM Financial) use to lower their own tax liability, which they then pass on to you.
Here is the breakdown of how they get the credit and how they provide it to you.
1. The Core Problem: Texas Double Taxation
To understand the credit, you must understand the default rule. Unlike most states, which tax only the monthly lease payment, Texas charges sales tax (6.25%) on the full selling price of the vehicle upfront.
• The Issue: Because the leasing company (the “Lessor”) is legally buying the car from the dealer to rent it to you, they owe the tax. They usually pass this cost to you, meaning you pay tax on the whole car even though you are only “renting” it for 3 years.
2. The Mechanism: Fair Market Value Deduction (FMVD)
The “mechanism” is essentially a massive, industrial-scale trade-in.
• Lease Returns: When previous customers return their leased vehicles to GM Financial, those cars are removed from GM Financial’s fleet.
• The “Trade-In”: Under Texas law, a leasing company can use the Fair Market Value of those returned/retired vehicles as a credit against the tax due on new vehicles they are buying to lease out.
• The Calculation: If GM Financial buys a new Tahoe for $60,000 to lease to you, they would owe 6.25% tax on that $60,000. However, if they just took back a returned lease worth $50,000, they can apply that $50,000 as a “deduction” against your new Tahoe. Now, tax is only due on the difference ($10,000).
3. How They “Provide” It to You
GM Financial (or other lenders like ally, TFS, etc.) accumulates these credits from thousands of lease returns across the state. They then distribute them to dealerships in batches.
• Tax Credits: The lender tells the dealer, “We have enough credits to cover 500 leases this month.”
• The “1% Lease”: instead of charging you 6.25% tax, the dealer charges you a flat 1% or 1.25% (essentially a processing fee for the credit). The lender uses their FMVD credits to wipe out the actual state tax liability, and you save thousands of dollars.
