I leased a car for 27 months. Part of my total monthly payment was earmarked for sales tax. At end of lease, I purchased the vehicle. Can the dealer charge sales tax on top of the residual price in the contract?
— Feeling Burned
Yes, you owe sales tax. Here’s why: When you lease a car, it’s owned by the leasing company and every month, as part of your payment, you paid a prorated amount of the sales tax on the initial purchase for the length of the lease.
When you buy the car at the end of the lease, it’s an entirely new sale to you at the residual price and the state will collect tax on it, just as if you had walked onto a car lot and bought any other vehicle. The good news is that unless the sales tax rate has gone up during the time you had the lease, the total of the taxes you paid under the lease and the tax paid on the purchase should just about equal what you would have paid on the car had you just bought it outright when it was new.