Texas law with regard to leased vehicles and no tax by leasee

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You realize you’ll pay both sales and property tax right?

That has nothing to do with sales tax. It’s to prevent you from paying a personal property tax. I fill it out every time I lease a vehicle in TX.

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If paying sales tax wasn’t the norm, you wouldn’t have done it with your previous leases.

Good tip!!

As someone who has leased cars for 20 years in Texas, the law is very deceptive because the State collects sales tax on the lease for the entire value of the vehicle and then when it is turned back to the company, they receive a tax credit for use on other sales from the state. EX. I lease a 30K vehicle and pay $1800 in sales tax as the lessee. The manufacturer received a credit of the value of the car turned back to them. If it is worth 15K, they get $900 back. If I were to buy out the lease, I need to pay the full value of the buyout again and I do not get the credit. Two lessons from my post.
One. The manufacturers give dealers tax credits. I have received them from Honda, Toyota, Nissan and Acura. I often lease with Zero sales tax due. They are not easily found. You have to call dealerships. Sometimes they are advertised as a tax credit or a no sales tax lease. I have some contacts I use to ask.
Two. One day, a plaintiffs’ lawyer will sue the manufacturers who get you to pay the sales tax of 6% on the entire lease value but they apply their credit to your car and therefore pocket your sales tax. How often does this happen? We do not know. Does it, yes. I bet the dealership puts some paper in front of you saying you are assigning all credits to them. But it is a misrepresentation.

I have called the dealers lobby groups to see if they would support changing Texas law on sales tax on the entire car value and they said no. I was willing to do the work for them for free showing other states who got it done.

If you buy out, you only pay sales tax on the contracted residual or if offered a reduced buyout then you are taxed on that.

Maryland does something similar to what you were describing, but because of it there is no avenue in which the bank is able to offer a lender tax credit.

So you pay 6.25% on selling price at time of lease and 6.25% on residual if you buy it out?

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Yes. Which is why you want to get sales tax credits on the 1st lease in case you buy it out in Texas. Its an odd Texas thing

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When do dealers typically offer a reduced buyout? Just curious if I’m able to negotiate the RV when it comes to turn in.

It’s a lender thing, Usually when post-lease auction values are far below the residual. :face_with_hand_over_mouth:

I was unaware of all these taxes in Texas. Seems… well, it doesn’t matter what it seems compared to other states. It is what it is.