Not really sure if you must pay tax and tax. I guess it depends on each state’s tax code. Most people haven’t a clue and it’s probably been done for so long, that it’s become standard practice for some states. I doubt it has been challenged in the courts and, who knows how that would turn out. It should not be allowed.
Anyway, I’m glad it worked out for you. So, your equation may have validity in some states. Have you ever tried PA and FL? My equations resulted in exact matches with dealers in PA and FL. I can’t remember the PA dealer, but I think the FL dealer was Gunther Volvo.
EDIT…
Using your formula, I got p = 327.95. Levying tax, I get 327.95 x .0725 = 23.78 yielding a contractual payment of 351.73. Still close but not close enough to the dealer (351.66) in the OP. Your calculator only gives whole dollar amounts rounded to the nearest dollar (I assume). The cents is missing. Do you have deals that show the cents?
The LH calculator outputs for the Mazda sample deal are:
Monthly Payment: $327.95272712183635
Monthly Payment (with tax): $351.7292998381695
I haven’t seen a PA and FL deal sheet with zero drive-off. I would be interested to see them and cross-check. I assume different desking softwares have different calculation and rounding methods.
It’s hard to tell from the Mazda sample deal whether the slight difference in payments is due to rounding or formula difference because the numbers are small. If we get a sample Rolls-Royce deal sheet with zero drive-off, we can probably be able to tell better exactly which fees are taxed.
Now I’m wishing I had kept the lease documentation (lease worksheet + lease contract). I usually keep them for the duration of the lease and then, purge them from my system. That was 10-15 years ago. I’ve done zero drive off leases in Ohio with Honda, Mazda, and GM Financial and the dealers always separate taxables from non-taxables. My calculations have always matched those of the dealer exactly. I always create a very detailed lease proposal and submit it to the dealer and always insist that their numbers must match mine and not the other way around. Too many people allow the dealer to control the deal… bad idea! So, my experience with Ohio is that you do not pay taxes on taxes whether you capitalize non-taxables or not. I think it’s easy albeit convenient to say you always pay taxes on taxes or tax on non-taxables when you capitalize them just to simplify the calculations. I’m not saying that you’re doing this as you and Michael have always strived for perfection with your LH calculator.
As for rounding, it’s doubtful that if calculations differ by say, a nickel or more from those of the dealer that it’s due to rounding even though rounding errors can be compounded. It’s usually a symptom of something else. But I can’t imagine what the problem is with the deal you posted in the OP. I don’t believe it can be attributed solely to rounding.
This is not universally true. For example, consider Ohio Tax Rules below. Check out the Q&A’s in numbers 14, 17, and 26. Apparently, one size doesn’t always fit all. When you create leasing software for use the US, I believe you must be familiar with each State’s Tax Code and how it applies to Reg. M consumer Retail Leases. That’s what I did many years ago and it’s a real pain.
I think what @littleviolette is saying is that based on the hundreds of contracts that have been submitted to LH through Signed!, it is very apparent that many dealers use software in which there is no difference between P0 and Pb, as you have defined above. That is,
Stated differently, Pt is often calculated simply as Pb(1+t), which may or may not be erroneously taxing non-taxable fees, as you’ve stated, depending on the lease structure.
I have combed through almost 200 contracts and can verify that this is the case (especially so in CA, as most contracts in the system are CA leases). That said, I seem to have trouble getting exact matches on FL contracts specifically, and perhaps the software used by most FL dealers are accurate in the manner you have described. I will run through them again and see if I can match them using your formula.
I think we also both agree that you are likely correct in that dealers should be calculating payments in the manner laid out in the tax code, but its likely that the software used by many dealers is not that specific, and no one would check, know better, or be able to calculate that difference and have it be significant enough (dollars, not cents) for someone to make a stink about it.
It’s great that we can have this nuanced discussion about this, but reality is more likely that going exactly by the book is the exception, not the rule.
I also think that most states just apply tax on the monthly payment, regardless of whether the monthly payment consists of the non-taxable fees, for the ease of implementation. NY was a good example of this approach as @delta737h has proven.
I believe this is true, with North Carolina being one notable exception. Just went thru this, had an issue with a deal in NC because a protection plan was capped and taxed but evidently is not supposed to be in NC so they had to get the base payment pre-plan, tax that, and then add the plan on top.
