Lease then Buyout - Contract Explanation

[MarkyMark]

What would you say to this conversation I had with the State of Oregon today?

I asked:

Regarding the lease of a new car and taxation, the online Oregon Dept. of Transportation statement says:

"The privilege and use taxes apply to sales of vehicles to lessors. The tax is calculated based on the retail sales price paid by the lessor to the dealer.”
There is the MSRP of a car, and then in a lease there is the Adjusted Capital Cost. The Adjusted Capital Cost is the price the dealer and consumer negotiate to then figure the monthly lease pricing and residual.

Thus, my understanding is, when the state say“… sales price paid by the lessor” you mean the tax is calculated against the “Adjusted Capital Cost" yes?

Secondly, I plan to buyout the lease early (at some point in the lease term). Thus, if I do so in the first few weeks of the lease, what then? This is a used car? Or is it still considered “new?”

Will I be double-taxed again when purchasing the leased car?

This is the non-answer answer I received. However, I think she made it just barely clear enough:

Good afternoon,

Once the vehicle has been registered with the Oregon DMV it is no longer subject to the vehicle use tax.

Then I get a copy/paste answer non-answer I already read:

Taxable sales are those of vehicles with 7,500 miles or less and a gross vehicle weight rating of 26,000 lbs. or less, and haven't been registered in Oregon.

The tax is calculated on the “Agreed upon value of the vehicle,” which would be the price paid by the lessor, who is the legal owner of the vehicle and so responsible for the vehicle use tax, to the dealership.

I think I lost her at "Adjusted Capital Cost"... But her answer is, I think, enough to show it is taxed only once, once the car is registered with the state. Whew!

Hope that helps anyone in Oregon.

 

[Fl stingergt]

Just buy the dam car. If you can’t afford it buy something cheaper. If you are in it for pure power and speed just get a gt. People are finding out as they buy gt2 its heavier and all wheel drive takes away horsepower from wheels. Also know lsd on gt1 witch sucks for xtra money you are paying. Good luck work those dealers down do your homework about car features. More bells and whistles for 1 and 2 but just a little slower then gt

 

[TROD42]

I recently talked to a dealer about leasing a GT2 AWD and purchasing it early. One aspect that came up that I have not heard of before on any of these discussions was paying taxes on the Lease cash. I was quoted a $712 tax (10% Washington State) on the Lease cash. On one hand it kind of makes sense since they are in essence giving you the cash to use so it should be taxed (since it is not a gift), but on the other, I have not heard anyone else mention this.

 

[Thang]

I recently talked to a dealer about leasing a GT2 AWD and purchasing it early. One aspect that came up that I have not heard of before on any of these discussions was paying taxes on the Lease cash. I was quoted a $712 tax (10% Washington State) on the Lease cash. On one hand it kind of makes sense since they are in essence giving you the cash to use so it should be taxed (since it is not a gift), but on the other, I have not heard anyone else mention this.

Similar in Colorado. I had to pay tax on the $7k lease cash on Monday when I leased my GT2.

 

[Job314]

Regarding the Texas Tax: I called KMF and confirmed they do not have any sales tax included in the buyout amount. I live in Texas (bought the car in Alabama). I did not know about this 'double taxation' issue at all beforehand, but according to my paperwork (bill of sale), I am listed as the purchaser (ie, there's a "sold to" box around my name on the form). The leasing company is a lien holder; just like if I bought the car instead and financed through them.

As long as KMF is honest about no sales tax (and it seems that way based on the buyout amount), I don't think my tax assessor will even be in the loop when the buyout happens and I will simply get the title sent to me from KMF with no lien anymore. And if the tax man cometh, I'll show my bill of sale showing there's no change in ownership; thus there shouldn't be any new sales taxes. Not foolproof, but I'm hopeful.

Anyway, thought I'd share in case anyone in Texas is contemplating this strategy. Maybe ask the dealer for a preview of the bill of sale and take a look before diving in...

 

[JVsGT]

Regarding the Texas Tax: I called KMF and confirmed they do not have any sales tax included in the buyout amount. I live in Texas (bought the car in Alabama). I did not know about this 'double taxation' issue at all beforehand, but according to my paperwork (bill of sale), I am listed as the purchaser (ie, there's a "sold to" box around my name on the form). The leasing company is a lien holder; just like if I bought the car instead and financed through them.

As long as KMF is honest about no sales tax (and it seems that way based on the buyout amount), I don't think my tax assessor will even be in the loop when the buyout happens and I will simply get the title sent to me from KMF with no lien anymore. And if the tax man cometh, I'll show my bill of sale showing there's no change in ownership; thus there shouldn't be any new sales taxes. Not foolproof, but I'm hopeful.

Anyway, thought I'd share in case anyone in Texas is contemplating this strategy. Maybe ask the dealer for a preview of the bill of sale and take a look before diving in...

Texas buyer here. So are you not financing the buyout thru another lender? I believe the "no sales tax included" statement may be questionable. Think about it this way: what happens in a lease scenario, KMF purchases the vehicle from the dealer. They have to pay sales tax to do so. When you buyout the lease, KMF is going to pass those taxes onto you. It's hard to believe they are going to eat that cost. Now, since you leased the car in Alabama, I can't speak to how they incorporate those taxes in the agreement. If you lease the car in Texas, you have to pay sales tax on the agreed purchase price of the vehicle. Then upon lease buyout, I was told by a leasing specialist, you are required to pay tax on the market value of the vehicle. Here's where the double tax occurs. The state of Texas considers it a separate transaction and therefore must be taxes as such. The only way to get around this, is to have a significant trade value to counter the initial taxation. In my case, my trade was $31k and my sale price was $42,040. Therefore, only paid taxes on $11,040. I had also previously called KMF and they also told me sales tax was not included. The only way to know for sure is to get a breakdown of the actual buyout amount.

 

[Mach_Tuck]

Similar in Colorado. I had to pay tax on the $7k lease cash on Monday when I leased my GT2.

Most states will tax the lease cash...its listed in Section 6A under the Sales/Use Tax on Cap Cost Reduction

 

[Mach_Tuck]

I will start another thread on my specific case but am currently in the process of the lease buyout.

Leased the car on 3/6
Buyout quote from KMF showed up when account on KMFUSA went active 8 days later. Buyout quote was exactly the ADJUSTED CAP COST from my lease plus AZ state sales tax. I had no other fees listed in Sec 9 so nothing else to pay. The buyout quote is good till the next scheduled lease payment so there is no proration of the rent charge which is unfortunate.

I have my credit union financing all lined up and just waiting on Official Registration so that the credit union can properly make a title change request. They cannot do this with the temp reg. Unfortunately, AZ is crazy slow with processing so i may have to make my lease payment on 4/6, get the original reg and then send the buyout check. I would expect the buyout amount to decrease by by lease amount minus the rent fee from the same.

I can confirm, based on my experience, that the contract is honored with regard to the buyout prior to maturity and adjusted lease balance calculations. I hand calculated all of my numbers ahead of time and was within $100 of the buyout amount KMF stated. There is no 3 month window to wait, no payment of residual plus all payments and so forth. The process works exactly as detailed in post #1.

 

[MarkyMark]

Regarding the Texas Tax: I called KMF and confirmed they do not have any sales tax included in the buyout amount. I live in Texas (bought the car in Alabama). I did not know about this 'double taxation' issue at all beforehand, but according to my paperwork (bill of sale), I am listed as the purchaser (ie, there's a "sold to" box around my name on the form). The leasing company is a lien holder; just like if I bought the car instead and financed through them.

As long as KMF is honest about no sales tax (and it seems that way based on the buyout amount), I don't think my tax assessor will even be in the loop when the buyout happens and I will simply get the title sent to me from KMF with no lien anymore. And if the tax man cometh, I'll show my bill of sale showing there's no change in ownership; thus there shouldn't be any new sales taxes. Not foolproof, but I'm hopeful.

Anyway, thought I'd share in case anyone in Texas is contemplating this strategy. Maybe ask the dealer for a preview of the bill of sale and take a look before diving in...

I'm in Oregon and our brand new .5% tax on NEW cars is based on MSRP. If leased, it's based on Adj Cap Cost, and once buying it again, like you say, it is in your name, and there is no double taxation. Boy, now that we have our first-ever sales tax (thanks Politicians!!!), this tax is only going to go up on a massive scale until we vote these commi's out of office! Ugh... At least it's one time in OR as well.

 

[Job314]

Texas buyer here. So are you not financing the buyout thru another lender? I believe the "no sales tax included" statement may be questionable. Think about it this way: what happens in a lease scenario, KMF purchases the vehicle from the dealer. They have to pay sales tax to do so. When you buyout the lease, KMF is going to pass those taxes onto you. It's hard to believe they are going to eat that cost. Now, since you leased the car in Alabama, I can't speak to how they incorporate those taxes in the agreement. If you lease the car in Texas, you have to pay sales tax on the agreed purchase price of the vehicle. Then upon lease buyout, I was told by a leasing specialist, you are required to pay tax on the market value of the vehicle. Here's where the double tax occurs. The state of Texas considers it a separate transaction and therefore must be taxes as such. The only way to get around this, is to have a significant trade value to counter the initial taxation. In my case, my trade was $31k and my sale price was $42,040. Therefore, only paid taxes on $11,040. I had also previously called KMF and they also told me sales tax was not included. The only way to know for sure is to get a breakdown of the actual buyout amount.

Hi JVsGT - no, I am not financing through another lender. I'm tending to believe the KMF rep because, doing the math, there simply is no room for another 6.25% in that buyout quote.

My bill of sale clearly had me (not KMF) as the one purchasing the vehicle. I agreed to pay the Texas sales tax on the price when I signed the bill of sale and that sales tax is baked into my total settlement lease amount. So, the way I assume this is working, is that KMF fronts the money to my tax assessor, and a short time later I reimburse KMF for this as part of my buyout.

Granted, if I used 3rd party financing to pay for the buyout and they put themselves in as a new lien on the title it might be a different story. That might trigger the Texas "separate transaction" nastiness you mentioned above.

 

[NYLAWBIZ]

Update: EXTRA SALES TAX IN NY!

Just confirmed that the lease/buyout works easily. I just got my account number, and went online to get a buyout statement. The buyout amount seemed a bit high though, so I delved into it. Well after a hour on the phone being jockeying around by reps, I finally figured out where my calculations were off. I learned how sales tax is calculated on car leases. Now, this applies to NYS; I have no idea if it is applicable anywhere else, but I'm sure it is a common sales taxation theme:

When you lease and then buy the vehicle (in NYS) there are two sale taxable events: sales tax on the lease itself; and then sales tax on the buyout price of the car. The buyout prace is specified in the lease in paras. 23B and 22D of the lease agreement and have been discussed already in this thread. However, its the sales tax that is paid upon the signing the lease that is the "Stinger": it is the sum of the following: (total amount of monthly payments under the lease + any down payment + any manufacturer rebate) x applicable sales tax rate. So, if you lease and then buyout, you end up paying more sales tax than if you purchased the car (either with cash or financing). The only way to mitigate this is to sign a lease with the lowest monthly payment amount. If I knew then what I know now, I would have made my down payment the adjusted cap cost - the residual, and go for lowest mileage. That way the monthly payments in minimized and thus the portion of the sales tax paid upfront (or more likely built into the lease) is less.

This is the NYS Department of Taxation and Finance document on the subject: https://www.tax.ny.gov/pdf/publications/sales/pub839.pdf

Cheers

 

[mberk3]

Hi All,
I just signed up to the forum and have been reading all of the helpful posts here. I'm hoping to get some feedback on this deal that I've been working via email with the dealer. What do you think? Good? Any suggested improvements?

Thanks in advance!

This is listed exactly as it was in the email.
GT2
MSRP - $50,100
Selling price - $47,500
Govt fees - $317.50
doc fees - $194
Acq fee - $595
Gross cap cost - $50,048.75
Residual - $26,052
rebate - $6700
cap cost reduction $5495
Net cap cost $37,853.75
amount paid by customer $5495

It Looks like three options were given for cap cost reduction $0=$665/mnth or $3,495=$558/mnth or $5495=$497)

 

[HughH]

Hi JVsGT - no, I am not financing through another lender. I'm tending to believe the KMF rep because, doing the math, there simply is no room for another 6.25% in that buyout quote.

My bill of sale clearly had me (not KMF) as the one purchasing the vehicle. I agreed to pay the Texas sales tax on the price when I signed the bill of sale and that sales tax is baked into my total settlement lease amount. So, the way I assume this is working, is that KMF fronts the money to my tax assessor, and a short time later I reimburse KMF for this as part of my buyout.

Granted, if I used 3rd party financing to pay for the buyout and they put themselves in as a new lien on the title it might be a different story. That might trigger the Texas "separate transaction" nastiness you mentioned above.

Hi JVsGT - no, I am not financing through another lender. I'm tending to believe the KMF rep because, doing the math, there simply is no room for another 6.25% in that buyout quote.

My bill of sale clearly had me (not KMF) as the one purchasing the vehicle. I agreed to pay the Texas sales tax on the price when I signed the bill of sale and that sales tax is baked into my total settlement lease amount. So, the way I assume this is working, is that KMF fronts the money to my tax assessor, and a short time later I reimburse KMF for this as part of my buyout.

Granted, if I used 3rd party financing to pay for the buyout and they put themselves in as a new lien on the title it might be a different story. That might trigger the Texas "separate transaction" nastiness you mentioned above.

I never heard about this system. Always told me the only way to avoid sales taxes on a Texas lease is when you can get the dealer to cough-up tax credit on the transaction. But it sounds great the way you explain it. I'll have to check it out.

BTW, I just found this great web site and saw something about the money/rebate was available until the end of Feb. Is there anything new about a similar program since the end of Feb?

 

[Big]

I will start another thread on my specific case but am currently in the process of the lease buyout.

Leased the car on 3/6
Buyout quote from KMF showed up when account on KMFUSA went active 8 days later. Buyout quote was exactly the ADJUSTED CAP COST from my lease plus AZ state sales tax. I had no other fees listed in Sec 9 so nothing else to pay. The buyout quote is good till the next scheduled lease payment so there is no proration of the rent charge which is unfortunate.

I have my credit union financing all lined up and just waiting on Official Registration so that the credit union can properly make a title change request. They cannot do this with the temp reg. Unfortunately, AZ is crazy slow with processing so i may have to make my lease payment on 4/6, get the original reg and then send the buyout check. I would expect the buyout amount to decrease by by lease amount minus the rent fee from the same.

I can confirm, based on my experience, that the contract is honored with regard to the buyout prior to maturity and adjusted lease balance calculations. I hand calculated all of my numbers ahead of time and was within $100 of the buyout amount KMF stated. There is no 3 month window to wait, no payment of residual plus all payments and so forth. The process works exactly as detailed in post #1.

Hi Mach_Tuck - Did you ever start that new thread about your specific case on your lease buyout experience with KMF? Would love to hear how it actually worked out with KMF and if there are any tips you can share. I expect to strike a deal next weekend for a GT1 AWD and sign the lease papers.

 

[stingeradmr]

i'm in the process of buying out my lease now, the only problem I had is finding someone at KMF who new what to do as far as paper work.

 

[Mach_Tuck]

Hi Mach_Tuck - Did you ever start that new thread about your specific case on your lease buyout experience with KMF? Would love to hear how it actually worked out with KMF and if there are any tips you can share. I expect to strike a deal next weekend for a GT1 AWD and sign the lease papers.

Just finished the process this weekend. Will post a new thread later today on the details.

 

[Big]

Just finished the process this weekend. Will post a new thread later today on the details.

Awesome. Thanks so much this has been a tremendous help.

 

[bugaboo90]

So I thought I was smart but I am still not getting this while lease buyout thing and how much money I will save by buying the car. I started my lease in early feb.

Here are the numbers that I think are important. Forgive me in advance for my stupidity...

Lease --
Residual (assuming I buy this after lease ends?) = 26726
Total pyment = 461.07*36 = 16598.52
Downpayment = 8100

Total out of My pocket = 51424.52
Lease rebate - 7200

Total cost with rebate = 58624.52
__________________________________________________________________________
Buying this out
Current buyout number on kfs website = $40,300
Payments already made - 461.07*3 = 1383.21
Downpayment = 8100
My out of pocket = $49783.21

________________________________________________________________________

My out of pocket diff (Savings) = $1641

This doesn't seem like a lot at all... What am I doing wrong? perhaps there is tax on the residual 26726 = 1870.. bringing the total $3,300 in savings. I was just expecting the savings to be closer to $7000.

 

[Thang]

So I thought I was smart but I am still not getting this while lease buyout thing and how much money I will save by buying the car. I started my lease in early feb.

Here are the numbers that I think are important. Forgive me in advance for my stupidity...

Lease --
Residual (assuming I buy this after lease ends?) = 26726
Total pyment = 461.07*36 = 16598.52
Downpayment = 8100

Total out of My pocket = 51424.52
Lease rebate - 7200

Total cost with rebate = 58624.52
__________________________________________________________________________
Buying this out
Current buyout number on kfs website = $40,300
Payments already made - 461.07*3 = 1383.21
Downpayment = 8100
My out of pocket = $49783.21

________________________________________________________________________

My out of pocket diff (Savings) = $1641

This doesn't seem like a lot at all... What am I doing wrong? perhaps there is tax on the residual 26726 = 1870.. bringing the total $3,300 in savings. I was just expecting the savings to be closer to $7000.

Lease rebate is minus $7200. Not sure why you are adding it to your total. It should be $51424.52 - $7200 = $44224.52

Anyway, on my lease buy out, I paid a total of $45,380 after taxes for an AWD GT2.

 

[Mach_Tuck]

You will pay tax on residual as well as potential finance charge for the same. Unless have cash. You already took advantage of the lease rebate. You ARE currently giving this back to KMF in the form of the RENT line on the lease agreement. A buyout mitigates paying this RENT and this provides your savings. The longer you make lease payments the more rent you pay back and the less benefit the buyout has.