Did you ever find a vehicle to lease?
A lessor doesn’t offer tax credits in other states, so a broker and their respective dealer outside the state of TX isn’t able to offer tax credits that offset the tax structure on the full sales price in TX.
Someone I am sure will correct me if am wrong on this but I haven’t heard of tax credits being available in any other states including the other couple of states which essentially drive up the cost of leasing through the tax structure.
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For EV’s, the makers (e: Acura) offers sales tax credits on top of Lease bonus cash(terminology for 7500 ev credit)?
Yes but not just for EVs, for leases in general. Because otherwise no one wants to lease when you have to pay that full sales tax!
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So here is how tax credits work.
Let’s say you lease a 50K car. In order to originate the lease you must pay 6.25% tax on the full 50K. (Technically and legally the lessor should pay it, but they always just pass the cost to the lessee). So you (the lessee) need to cough up $3125 to the State of Texas in order to register the vehicle.
After your lease runs out in 36 months or whatever you go back to the dealership and drop the keys off in order to return the car. When the lessee returns the car to the lessor, the lessor will get a tax credit from the State of Texas. How?
It’s pretty clear to most people that you get a trade-in tax credit when you are trading in an old car/pickup that you finance or own (not leased). Whatever that thing is worth at the time of the sale reduces your tax liability on the new vehicle that you plan to finance. The confusion with leases revolves around ownership of the vehicle, because with leased vehicles even though you drive it, you never own it. The bank owns it the entire time of the lease term. So the lessee is dumb enough to pay a sales tax on a vehicle that they never even own. (realistically, they don’t have a choice). So what happens at lease turn-in is that there is a difference in the value of the car when it was taxed as new versus the value of the vehicle at turn-in. Let’s say in this case that the car is worth 50% of what it was worth when it was new. So 3125/2 = 1562.5 would be the difference in value of the tax due. That delta is returned to the lessor as a tax credit. Unfortunately, even though the lessee paid the tax, no part of the tax credit belongs to him.
The accountants at the dealership keep tabs of how many tax credits are available to them and pool them. So if they had 10 lease returns in one month like in the example above, they would have $15,625 dollars worth of tax credits.
So what does the dealership do with these tax credits? It can do anything it wants with them. Give them out to the GM when he/she buys a car…you betcha! What about to their friends/family? Probably. Do you think that they will give them to you? Maybe, but you need to ask.
Some dealerships might give you a partial credit and only subsidize your tax by a few percentage points. Some may completely wipe out your tax liability and make it so that YOU owe no tax. Of course the tax is still being paid to the state, it’s just that you aren’t digging into your own pocket to pay it. The other variation is where the dealership will offer an “L&M” fee of 1% or 1.25% in lieu of the full credit. They argue that it pays the banks and accountants who keep tabs on these sorts of things. I guess, but if that’s how it works then getting 5% of your tax bill subsidized versus paying the full 6.25% of the sales price is still a pretty great deal.
Some dealerships give 1 or 2 equivalent tax credits per month to high-performing salespeople to help them get a sale over the line. Sometimes they pile them up during the year and blow them out in a huge sales month maybe at the end of the year. Some of them will offer tax credits to customers to encourage sales of low volume models or ones with bad sales. There is no rhyme or reason as to who gets them or how much they get.
It’s an unfair system because a tax credit happens because some poor guy who doesn’t know how the system works paid the full amount of the tax, and a smart lease hackr who knows how the system works is taking advantage of the knowledge gap to apply that other dude’s tax overpayment to his own tax liability. Basically it’s a ponzi scheme that legally preys on lots of clueless car buyers turning in their leases and never asking for their tax credits back.
This doesn’t make it illegal or even unethical. It just means that people who are smart can get extra “free” money applied to their lease liabilities and lower their monthly payment.
The tricky thing about tax credits in Texas is that they are unpredictable and totally at the whim of the dealership. BUT, since the tax bite on a leased car in Texas is so onerous (since the full value is being taxed at inception), it’s only possible to get a super-low unicorn-type payment on a new car by being lucky and getting a tax credit. Otherwise, you’re going to get dinged for several hundred dollars extra per month to pay the tax man.
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It’s not up to the dealer. It’s up to the bank.
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You’re correct. Maybe I conflated bank/dealership in my explanation but from the perspective of a buyer there is no material difference.
But just to be clear the tax credit goes to the entity that owns the vehicle. In this case the financing arm or the bank owned the vehicles and not the dealership. The bank will tell the dealer how to apportion the tax credits. But for the guy trying to negotiate a lease and trying to get a tax credit, his contact will be a manager at the dealership.
Also, just an additional note that tax credits do not come from manufacturers at all. It’s strictly a tango between banks and dealerships. Manufacturers will offer rebates or lease cash, but that’s an entirely different thing.
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As long as the lender tax credit isn’t limited or restricted to specific models the dealer has no incentive to hold out on applying it. During the shortages we effectively had lender tax credits to use across the whole lineup usually for months at a time.
In some cases it may be a specific dollar amount of sales that can be applied in chunks. ($10,000, 20,000 etc) or capped (up to $80,000 worth in taxable SP)
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Very useful and detailed explanation for Texas residents regarding leases!! Thank you
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You’re welcome. I saw this question popping up over and over again so I finally decided to post an explanation. I hope it’s helpful. I might pull out the explanation and post it on its own with a different heading so that it’s easier to find in the future.
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As far as I know, a dealer that is not in TX cannot offer sales tax credits to a TX resident. It must be a TX dealer to someone registering the vehicle in TX.
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That’s correct. The way the law is written, it’s basically using “lease turn-ins” within the state as “trades,” and the tax is lowered through that little loophole, since BMWFS is the owner of the car(s).
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Can’t believe I didn’t see the notification of being tagged in this and just stumbled upon this post…but if you don’t already have one and get the GM Card it’s 0% for 9 months. And I know every dealership is different, but we only allow up to $3500 on a card. So if you ever go through us for a vehicle keep that in mind.
Yes, I was able to lease a 2024 F150 Lightning for $299.96/mo, 24/7.5, first payment (only) DAS. Found the broker deal through this forum, broker fee was $499 and worth it to me in order to not have to do the footwork to get to this point. Overall, it was too good to pass up. Could have gotten 24/10 for $326 but I elected not to.
Also paid $375 to have it delivered from the dealer that was 4 hours away from my home. The dealer wanted $500 for the delivery at first but when I balked they pretty much immediately came back with $375. Had it not been Christmas week I probably would have gone and gotten it in person, and the dealer offered to have the porter pick me up at the bus stop for the fancy bus that goes from Austin to Houston.
We almost went for that deal! Hindsight prob should have but the Solterra is great so far and has a longer range battery.
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Great info! Good to hear it straight instead of confusing stories from dealers.
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If you register it in another state then bring it here, you only pay a $90ish sales tax 
We almost did that with an Audi but didn’t want to have CA plates in TX
I see CA plates all the time here in the Austin area. We have a lot of CA tech transplants. Honestly those CA transplants don’t bother me as much as the tech guys that are fresh off the boat from India or some other S Asia location. The fresh off the boat ones are absolutely terrible drivers and their wives are even worse as often they’ve never drove before, I’ve been told. It’s just impossible to avoid driving in the USA suburbs unless you want to pay for Uber and that will cost more than a car payment, especially if you use Leasehackr!
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