I am doing a car lease in Pennsylvania and I am checking some dealers’ quotes I received and have two questions I was hoping you all could help with.
First - Do I need to add the PA sales tax (7%) to the negotiated car price?
Second - Pennsylvania also has a 3% Use Tax. Do I need to add that to the monthly lease payment?
I am confused because I hear that PA is charging a 10% tax on lease payments, which leads me to think that I am paying taxes twice. I have received mixed comments from dealers about whether I am paying sales tax on the full price of the car or only on the lease payment.
Apologies if this has been asked before, but I was looking around and I couldn’t find an exact answer to my question/s.
You’re not getting taxed twice, but you could say you’re getting taxed “more” I suppose.
PA charges 6% tax on purchases (7% in Allegheny county, and 8% in Philly county). They then add an additional 3% lease tax on top of that when leasing (based on the monthly payment, not the entire purchase price). Since you indicate 10%, you must live in Allegheny county, so this is correct. Note, buying a car in Westmoreland county won’t save you any money, as they will tax you based on your registered ZIP code in Allegheny.
Very rudimentary example with no incentive, no discounts, no dealer doc/lic + no interest
Let’s assume you lease a car with an MSRP of 20k and a 50% residual for 3 years. The lease cost on this would be the difference between the MSRP + residual in this example, or 10k over 3 years. Divide your 10k by 36 to get 277.78/mo. This would be taxed at 10% or, 27.78 for your effective lease payment of 305.56. Your tax paid in this example for the duration of the lease would be 27.78 * 36, or 1,000.08. In comparison, you would pay 6% of 20k, or 1,200 in taxes to purchase.
Thank you very much for the quick response and for the easy to follow example.
One of the dealers was grossing up the negotiated amount for the full amount of the sales tax and then was charging an additional 10% on the monthly lease, hence the original confusion.
Update to 2024: I went to compete my paper work for a lease in PA, when I noticed an over $1100 under cap reduction ,a charge for 6% tax on the dealer’s incentives. I balked and I asked for an explanation since I want the one putting the money down to reduce the vehicle , they were. Response was they have always been charging the tax to the buyer, leasee. This is what I found:
