Washington State has a sales tax exemption on certain EV/PHEV vehicles. I leased an eligible vehicle and did an immediate buyout (vehicle has a $4500 rebate for leases only). Unfortunately the dealer did not exempt the taxes, so I am currently going through the state department of revenue to get a tax refund. Numbers are as follows:
Itemization of Gross Capitalized Cost:
Agreed Upon Value of the Vehicle: $39763.00
Taxes: $1537.21
Other Fees: $1529.00
Total: $42829.21
Gross Capitalized Cost: $42829.21
Capitalized Cost Reduction: $14233.45 (Note: 10.8% sales tax = $1537.21, matching the tax included in the Gross Capitalized Cost)
Adjusted Capitalized Cost: $28595.76
I bought this out within the first 30 days. My buyout amount was $28517.67 + $3079.91 (10.8% sales tax)
The agent is arguing that “the dealership would not include the sales tax of $1,537.21 as part of the $28,517.67. Sales tax cannot be included in the $28,517.67 only to be charged sales tax for a second time.”
Based on the numbers above, I believe that the $28517.67 buyout does include the cap cost reduction sales tax AND that the sales tax was double taxed upon buyout. Any lease expert here who could chime in?
It helps to see how things were actually structured.
When you capitalize taxes, what is essentially happening is the bank is paying the taxes on your behalf and then loaning you money for that amount. Things like tax, non-taxed fees, etc basically become taxed at that point since they’re really a separate payment to the bank.
The appropriate way to limit your tax liability here would have been to have nothing capitalized and instead have the fees paid directly upfront. Unfortunately the way the dealer structured it here does cost you more money.
It’s certainly something I will keep in mind for future leases. If only I had known that at the start, I wouldn’t have this headache on hand since it would be clearly labeled that I paid the taxes at signing.
The important issue now is whether the buyout amount includes the capitalized taxes or not. I think yes, but the DOR agent says no.
Let’s back up a bit and try to get to what you’re trying to ask here.
What do you really mean? The gross capitalized cost doesn’t have partitions to it where the cap cost reduction pays some part of it first and then another part and the dealer doesn’t dictate if the amount after the cap cost reduction does or doesn’t include rolled taxes.
I manually confirmed all the dealer’s calculations, and they are accurate. However, as @mllcb42 indicated, the lease is poorly structured. WA taxes the individual payment streams. Unfortunately, if you capitalize non-taxable fees, including taxes, they will get taxed. So, yes, you are paying tax on tax as the base payment includes the capped 1537.21 tax.
FYI- Your MF = .00285. Section 29 references the calculation of the adjusted lease balance using the constant yield rate (CYR) which is the interest rate used to amortize the lease. The CYR is not disclosed so it must be calculated. I used the Excel RATE function as follows…
The adjusted lease balance (ALB), if paid within 30 days, is calculated as follows…
ALB = (Adj. Cap - 1st Base Payment) x (1 + CYR/12)
= (28595.76 - 240.57) x (1 + .0687683433/ 12) = 28517.68
Note that the ALB is calculated using the base monthly payment (excludes payment tax). However, the 28595.76 does capture the capped tax of 1537.21. Therefore, you’re paying tax on the 1537.21 when the 240.57 gets taxed and, again, when the adj. cap of 28595.76 less the base payment gets taxed shown below…
Buyout = 28517.68 x 1.1080 + applicable other taxes/fees
There is no purchase option fee.
The gist of it is that yes, I did pay the $1537.21 in taxes when I bought off the vehicle. As a side note to myself - I should never capitalize taxes otherwise I will run into double taxation issues.
I’m far from an expert on WA sales tax exemptions but did a little digging. The selling price (agreed upon value) of your vehicle is 39763 which is less than the 45000 threshold. Therefore, it seems to me that the 4500 rebate is tax exempt unless WA has changed their tax exemption policies in that regard.
Can you calculate the difference if part of his $10k CCR went to pay taxes upfront instead? He wouldn’t get taxed on that $-1500, but then his ALB would also be higher by that same -$1500 amount, so when he does the buyout, he’d be paying more in taxes then. Would the difference only be the interest savings between the sale date and buyout date on that $1500 difference?
The total exemption amount is squared away already (the first $15000). What’s been hanging us up is that the agent thinks that the Cap Cost Reduction of $14233.45 was already tax exempted, therefore he will only be refunding me ($15000 - $14233.45) * 10.8%
Yah, that part definitely is incorrect based on the contract.
The whole “is the tax in the $28k buyout” is serving to be more of a distraction here than anything. The contract shows that the full sales tax was included in the lease. If it had been tax exempted, $0 would have been capitalized and you would have another $767 of the buyout price that would also be tax exempt.
Cash Cap Reduction tax @10.80% x 9733.45 = 1051.21
You’ve already paid capped taxes of 1537.21. This means you are owed a tax credit = 1537.21 – 1051.21 = 486.00. So, WA owes you 486.00 assuming the 4500 rebate is, indeed, tax exempt.
It doesn’t stop there…. Because the 1537.21 was capped, which is 486.00 more than it should have been, the dealer owes you the finance charge on the 486.00 difference…
Finance charge = .00285 x 486.00 = 1.39 …. (presumably, you only made one payment) …. which is not worth pursuing. This takes care of the lease agreement.
Regarding the buyout…
Because the ALB of 28517.68 includes the additional 486.00 tax, it must be credited back to you plus tax. Therefore, you are owed 486.00 x 1.1080 = 538.49 as a buyout credit.
Total Due = 486.00 (lease agreement credit) + 538.49 (buyout credit) = 1024.49
Remember that the lease transaction and the buyout transaction are two distinctly different transactions.
Bottom line, those WA bureaucrats owe you 1024.49 due to the dealer’s incompetence. Again, I’m assuming that the 4500 rebate is tax exempt. I suspect that explaining this to those clowns will be challenging at best. Good luck.
I believe rebates are taxable in Washington. Regardless, it should be a 1:1 sales tax exemption on the first $15000 of the entire vehicle purchase, including the rebate, cash cap reduction, and buyout, so I believe the total amount due to me is $15000 * 10.8% = $1620.
There are some additional charges that resulted from the dealership not properly exempting taxes, but I’m not going to quibble over those. That makes the math way too messy.
huh??? I can understand a rebate being tax exempt. But I don’t understand why an out-of-pocket cash cap reduction is tax exempt. It doesn’t make any sense. What is your source? Again, I’m not an expert on WA taxes. I’m from Ohio.
The WA tax exemption for evs appears to make the first $15000 paid by the customer be tax exempt.
If the exemption wasn’t issued and you buy out the lease, it applies to the buyout. Alternatively if it was applied to the lease, but less than $15k had been spent, the balance applies to the buyout.
In this case, that would mean the simplest path forward would be that sales tax would only be due on $13517 of the buyout rather than a refund coming for taxes paid already.
Here is how I’m interpreting tihs piss poor doc that begs for a lot more clarity…
Suppose the base payment (excludes capped taxes, is 250 for a 36-month lease.
Total Base Payments = 36 x 250 = 9000. Therefore, the exemption is limited to 9000 for the lease. If the vehicle is purchased before the lease expires, then the exemption on the buyout is 6000 (15000 - 9000). So, the total exemption for both the lease transaction and the purchase transaction is 15000.
The tax that has already been paid for both the lease and the purchase should be reduced by 15000 x 10.80% = 1620 … This is the amount of tax that should be refunded to you.
So, it seems that your latter claim has merit. Apparently, the 15000 exemption for leases applies to all or a portion of the lease payments as long as the agreed upon value does not exceed 45000.
