I read in this forum that lessee in Texas has to pay taxes when leasing a car on the total value of the car. However, shouldn’t Texans NOT have to pay any taxes on a leased vehicle used for personal use based on this law I just read?:
Tax is imposed on the **leasing company’s Texas purchase **of a motor vehicle and is due at the time of titling and registration. Tax is calculated on the leasing company’s purchase price. The leasing company may use the fair market value deduction to reduce the vehicle’s taxable value.
No tax is due on the lease payments made by the lessee under a lease agreement. Also, no tax is due by the lessee on the purchase of a motor vehicle for lease in Texas. Any tax paid by the lessee when the motor vehicle was titled and registered in Texas was paid in the name of and for the lessor.
THEN I FOUND THIS:
Leased vehicles in Texas are not subject to property taxes unless they are used primarily to generate income. While Texas starts with the premise that all property is taxable, unless exempt by state or federal law, Texas exempts leased vehicles from property tax, unless they are used primarily to generate income.
Texas does exempt leased vehicles that are not held for the primary purpose of income production by the lessee. These vehicles include passenger cars or trucks with a shipping weight of not more than 9,000 pounds and leased for personal use. Personal use would mean using the vehicle for more than 50 percent of its use (based on mileage) for activities that do not involve the production of income. The exemption applies only to vehicles subject to a lease entered on or after Jan. 2, 2001.
To qualify for the exemption, you must timely file an affidavit with the leasing company. You may print the Lessee’s Affidavit of Primarily Non-Income Producing Vehicle Use form now or it is available from the leasing company.
To receive the exemption, the leasing company must file a Lessor’s Application for Personal Use Lease Automobile Exemptions application with the county appraisal district where the property is located before April 30 of each year. The exemption application should contain all vehicles that are used primarily for personal use. If the leasing company does not file the application timely, the vehicle is not exempt for that year.
The leasing company has to pay 6.25% tax on the selling price of the car. Unless you expect them to just eat that cost, they are going to ask you to repay those taxes. Some dealers have “Lender tax credits” which reduce the amount of taxes you owe the captive bank.
You are right, YOU don’t have to pay taxes technically, but in practice, you do, because no one is going to lease you the car without you paying any tax.
For the second part of your question, property tax and sales tax are two different things.
To make sure I am clear, the law says I do not have to pay taxes on a leased vehicle. Having said that, all leasing companies still charge the lessee the taxes they paid and this is legal and it is the way it is, correct? I have always leased, except the last time, but this is the first time I am actually taking the time to know what I am doing.
I don’t think I asked about sales tax? When you lease a car and pay taxes, this is just the property tax you are reimbursing for correct? Or am I just completely off?
Not true. It’s selling price of the car. Technically, MSRP - Discount (If Applicable) - Incentive or Rebate (If applicable) Don’t know where you get that information from.
100%! I agree with you! IAC is throwing out terminology/ acronims which is confusing.
To me, and I could be wrong, this is black and white. We are talking about only being taxed on the full price of the vehicle (in Texas) which people in this forum and the calculator says is our responsibility. Texas law says It is the responsibility of the leasing company, notthe lessee in Texas. The law says that me as a lessee should not have to pay taxes on the value of the car (the value of the car when the company bought it because it is their car, not mine). Just to clarify, THEY have title, I don’t, right? If I am correct, why should I pay taxes on the price of a car that someone else bought which I have to return to them? They could lease it again and according to “the norm in leasing industry”, the new lessee pays the same taxes again? I am paying them to borrow the car, thats it! Is this correct? If so, then why, in my scenario, as I am looking at a Mercedes CLA, do I have to pay $3800.00 in taxes when I am not the one who purchased the car and gets to keep it?
On a different note, my previous post said that I can submit an application for personal use to be filed by the leasing company to be tax exempt. Do you file this before or after the lease is signed?
Also, sales tax? This is a lease, not a sale. You only pay sales tax when an entity has a resale sales license which you dont need to lease a car. This scenario is only property tax, paid by the company who bought it and whose property it remains. There should be zero tax on a lease according to Texas law?
To you, it is a lease, but for the dealership, it is a retail sale even though it is a lease. So you do have to pay tax on the selling price. Property tax is something you pay every year because the state considers the vehicle as a property
You realize a sale occurs, right? The dealer sells the car to the lessor.
Everyone loves a good hack, but this is pure fantasy. No lessor will offer a contract without language guaranteeing that they will be reimbursed for taxes on that vehicle.
Lessor aka lender tax credits that make sales tax 1.xx% of selling price is what you should target, when and where they are available.
This is why they have the tax credit program, but you are never going to force a bank to sell you the car without some form of reimbursement for the taxes.
Property tax. They bought the car, they are using it to make income, I am borrowing the car for a cost. Yes I do expect them to eat the cost because purchased a car and sales tax is what you pay when you purchase something. They then want to use the car as a business and are profiting from lending me the car THEY bought.
There is Form 50-285 in Texas. It is a Lessee’s Affidavit for Motor Vehicle Use Other Than Production of Income. It is often filled out when signing all the paperwork.
When you wake up from your dream where a bank is going to eat THOUSANDS of dollars of cost just to lease you a car, feel free to join us in the real world.
I AM going to pay whatever is the norm. I just was trying to educate myself. I wasn’t sure if this actually was the norm and my input on the various replies was just to make sure that this is the case in every scenario. I am not an idiot and am not going to ask a dealer for something that is never done.
