Summary of Changes in Tax Base for Motor Vehicle Lease Transactions
Under the Streamlined Sales and Use Tax Law (Effective 10-01-05)
For motor vehicle leases (agreements for a term of more than 6 months) entered into on or after 10/01/05, the following is a summary of the items that are and are not included in the tax base, for purposes of calculating the accelerated sales tax due when using the total of the lease payments method. ( N.J.S.A. 54:32B-7(d)):
- The portion of the lease payment attributable to capitalized sales taxes is not included in the tax base.
- The portion of the lease payment attributable to the payoff of a prior loan on a trade-in vehicle (negative equity) is not included in the tax base.
- The portion of a lease payment attributable to the buy-out of a prior lease is not included in the tax base.
- Acquisition fees are included in the tax base.
- Capital cost reduction payments are included in the tax base, e.g. manufacturer rebates, cash down payments. (this does not apply to trade equity, see below for treatment of trade-in credit)
- Other lessor charges, unless specifically excepted by a ruling or rule (such as title and registration fees, see below) are included in the tax base, regardless of their designation.
- Fees commonly known as “MV Fees,” which are imposed by the State, including title and registration fees, are not included in the tax base.
- Reimbursed coupons or rebates, regardless of whether directed toward payment of up-front fees or credited as a capital cost reduction payment, are included in the tax base.
- The allowed value of a trade-in which was owned by the customer and is taken by the dealer for re-sale is credited against the tax base for purposes of computing the sales tax.
The taxability of the following charges has not changed:
Gap Coverage (provided by lease company) - Taxable
Gap Coverage (provided by third party insurer) - Exempt
Credit life, health, unemployment insurance - Exempt
Etch - Taxable
View additional information concerning the application of the new law to lease and rentals transactions