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Texas Sales Tax On Car Lease

By February 12, 2017April 28th, 2022News and Articles, Tax News


Texas Sales Tax On Car Lease

Texas laws require that the lessor (the lease company) pay sales tax on the full value of any vehicle they buy from a dealer and lease back to a lessee (you and me). This is different from most other states in which no such tax is charged to the lessor, or the tax is administered in a different way.

We’ll assume that the Texas lessee rolls his sales tax into the financed (capitalized cost) portion of the lease — does not pay the tax in cash.

In our example, the vehicle’s cost is $30,000, the lease term is 36 months, residual value is $15,000, and interest rate is 6.5% (money factor: .00271).

Our Texas lease customer must pay full sales tax of $1875 added to the $30,000 cost of his vehicle. Using our Lease Calculator, we find the monthly payment – $596.00.

In another state, for the same vehicle, same price, and same tax rate, the monthly payment is only $572.69. This amount is made up of a $539 base payment with $33.69 sales taxed added.

The difference of $23.31 a month is simply extra tax that provides Texas customers no benefit. It adds up to $839 over the life of the lease. For this reason, leasing is more expensive in Texas than most other states.

Most lease contracts have lease-end purchase clauses that allows the leasing customer to buy his vehicle at the end of the lease, if he chooses to do so. Otherwise, the vehicle is returned to the lease company.

Texas state laws consider the sale of a vehicle by a lease company at lease-end to be a separate sale, although a special one, and the lessee is not charged sales tax again if the correct amount of tax was paid originally at the beginning of the lease.

Texas Sales Tax On Car Lease

Mansoor Ansari

Author Mansoor Ansari

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