m5guru

Now, there are a bunch of smart, worldly folks here and I'm hoping that you can answer a quick question for me.

In California (or where ever if it is univeral), when one leases a car, does one pay any sales tax to the state?

And when it comes time to purchase the car from the leasing company, of course one has to pay off the lease-buyout price. But do you have to pay sales tax at that time? The person I bought my car from purchased the car off the leasing company and had to get clean title in order to sell it to me so that I could register it in the state of Maryland.

He finds out now that he needs to pay thousands of dollars in taxes to CA on a car he just sold, only to have me have to pay tax in the state of Maryland? Something doesn't seem right.

Any thoughts on this?
Thanks,
David

Chrisp3

While I have never leased a car, I do know that you pay sales tax each month on the lease payment for that car. It also makes sense that when you finally make the decsion to "buy" the car the state treats it as a separate transaction....not a continuation of an existing transaction....and as a result...charges you sales tax again but only on the final sale cost.

With regards to titles....My experience has been that if you buy a car in one state and pay the sales tax for that state, and then move to another state, you can usually sign an affidavit stating that sales tax was paid in another state and that you are simply importing the car from one state to another.

However, that assumes that you are the registered owner in both states. In other words, I think that you would have to first register the car in CA and then ask the state of Maryland to issue you a Maryland title in your name and destroy the CA title. Presumably, this shows the state of MD that you already paid sales tax in one state (CA) and it would not be proper for them to cahrge you a second time....(is that what they call double taxation)?

I know for a fact that when I moved from MO to MD there were no issues in "trading out" titles and getting a new MD title. But, in MD you have to pay an annual tax based on the value of the vehicle and I think that the first time you do that is when you get the title problem resolved.

Unless you are very lucky and find one of the folks at the state office "asleep-at-the-wheel" so to speak, I think that you are going to have to pay sales tax on the car in MD and the guy in CA is going to have to pay sales tax before he gets his "clear" title from CA.

I think you (or the guy in CA) are hosed! The state governemnts have a pretty good deal going for themselves and they don't often miss many opportunities to make a buck

m5guru

If the amount of the sales tax paid along the way is related to the capitated cost that is reduced each month by the leases payment, then it makes sense that they would charge you a lump sum when you purchased the car from the leasing company, I guess. In the end, I guess the state of CA wants the tax on the "full value" of the car's sales price (a little along the way each month, plus the lump sum when you pay off the leasing company at the end) and it is just especially painful when you assume the lease at the end (and have to pay the leasing company, and additionally you have to pay the state the "back-end" sales tax) in order to sell the car.

Perhaps if the seller understood this all along, he wouldn't have structured the sale this way.

For my personal education, is it possible for an individual to assume another person's lease?

And is it possible to kill two birds with one stone and pay off the leasing company and then sell the car to an individual while only going through one title change (assuming an in-state sale with only 1 DMV involved)? If that were possible, he could do what was suggested above -- transfer to buyer's name in CA and then the buyer would be exempt from sales tax upon the transfer to the buyer's state -- and the two individuals could come up with an arrangement on how to split the sales tax expense. But knowing our governments, they've probably closed that loophole.

David

djantlive

Why not have you buy the car from the lease company directly? Do they want more money than the residual if they auction it off?

CLL ACAB

Welcome to the state of California. In Arnold's world, you pay sales tax on a lease on the cap reduction and on each monthly lease payment. That is exactly why I lease expensive cars in CA, which I know I am not going to keep more than a few years. If you turn it in at the end of the lease, you don't have to pay sales tax on the residual value. However, if he bought it from the leasing company (and then resold it) I think he would end of having to pay the sales tax on the purchase price. To sell it, he would have to have title; to have title , he would have to register it and when he does that, he would pay the sales tax. If you purchase a car in CA, you pay 100% of the sales tax and even if you trade it in one year later - sorry, no credit for the amount paid.

m5guru

This is an interesting thought as well. Unfortunately (for one of us at least), this is a done deal already and we're just picking up the pieces. I suspect that if the seller knew all these details ahead of time, he wouldn't have sold the car. At least not under the terms it was sold for. I wish we had the information needed before the transaction took place.

For me, on the buyer's end, I found a car that seemed desirable to me, agreed on a price and some terms as far as shipping, payment, etc. and thought it was a done deal. Only later do I find out about the leasing arrangement - and never having leased a car, I didn't have any idea it was such a raw deal.

David

Gnome

David, sounds like an unfortunate set of circumstances. For future reference, the better way is as djantlive said. Have the seller work out an arrangement with the leasing company whereby you buy the car directly from the leasing company. You need a cooperative leasing company to do this, especially if the buyout price is much lower than the market value of the car. Best of luck, and at least, enjoy the new car.

djantlive

Just out of curiousity, why is he selling a car he can return to the lease company? Does it have tons of miles?

m5guru

I don't know how many miles he was allowed but I do know the lease would have been up Jan 06. I suspect that the seller would not have sold the car if he knew about these terms and would have just kept the car until the lease is over. I know I would have.

The car had 25,000 miles on it. It would have been a 3 year lease.

David

djantlive

Usual lease term is either 10k, 12k or 7.5k mi every year. Doesn't sound like mileage is the concern. I think he probly has a new car coming and need to return this one before lease is up.

m5guru

Can you terminate a lease early with some sort of penalty? I'm just trying to think of a better way to do things if or when I'm in the seller's shoes in the future?

David

CLL ACAB

Generally, the "penalty" is the remaining lease payments. So if you have a year left and you send them the value of 12 payments, you can get out. The only real option is to try to sell the car and to subsidize the buyout price.

m5guru

Yes, that's the other factor that makes me feel really bad about the whole deal. After the deal is done, I come to find out he has to pay a couple of thousand more than my purchase price to just get out of the lease. So, in contrast to the situation where the buyout price subsidized the lease termination, this transaction resulted in an increased penalty.

I guess he really wanted to be rid of the car, but I know that the tax payment was a surprise to him (and to me).

Thanks for all of your input. Now I know why I've never leased a car before!

David

snaproll

But wasn't this the case before Arnold? He didn't originate it, he inherited it.