auto

Pay sales tax when I buy my leased car?

Tara Baukus MelloDear Driving for Dollars,
My lease is almost up and I would like to purchase the car. The dealership is telling me that I will need to pay sales tax on the original price, $22,880, not the residual value of $14,020. I thought the sales tax was calculated on the residual value only. Who is right?
-- Ronald

Dear Ronald,
Sales tax on leased cars varies from state to state, but it's best to check. You may already have paid the required taxes.

Car salesman holding keys © Syda Productions/Shutterstock.com

While the way sales tax is calculated on leased cars varies from state to state, it is likely that what the dealer is telling you about needing to pay the sales tax on the original price of the car is wrong.

Chances are you have already paid at least some sales tax on the car, so it's highly unlikely you need to pay taxes on the original price of the leased car. Most states roll the sales tax into the monthly payment of the car lease, though a few states require all the sales tax for all your lease payments up front. In a couple states, such as Texas, lessees must pay sales tax on the full value of the leased car (what you described as the original price) versus just the tax on payments during the time of the lease.

You may not only have paid some sales tax on the car already, but possibly all of it. Go back to your original lease paperwork and you should find a breakdown of the taxes. Then, contact your state's Department of Motor Vehicles or visit its website for clarification on how sales taxes are calculated on leased cars in your state.

Remember, too, that you can turn in a leased car or do a buyout of your leased car at any franchised dealer that carries your brand. If you are uncomfortable working with the dealer you originally leased the car through, simply take your business to another dealership.

Find the best auto rates at Bankrate.com.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
 

A little research could save you BIG on interest.

Don't have time? Our rate-tracker tool saves you time and money. Delivered Thursdays.
 
advertisement
Partner Center
advertisement

Blog

Tara Baukus Mello

Air bag recall hits 7.8M cars

About 7.8 million cars have been recalled due to a possible problem with the airbags that could cause them to deploy unexpectedly.  ... Read more


Connect with us