Paying tax on a incentives and rebates for a lease

Hi All,

I'm currently negotiating a lease with rebates and incentives. The dealer claims I need to pay around $1,000 in taxes for those rebates and incentives (around $11,000) at signing. In CT, I never heard this before for a lease, we pay taxes on the monthly payment. I didn't pay such taxes on my first i3 which also had $5,500 tax incentive back to BMW Financial. Has anyone experienced this?

I get having to pay taxes on incentives and rebates on a purchase, but since you are not owning the car in a lease, shouldn't you pay taxes only on the portion of the value you are using?

Thank you in advance for your feedback.

That's the way it works in California. Rebates, incentives, etc. are treated as if you had paid a down payment. So it's taxed like each of the other payments.

Sometimes the tax credit money is used not as capital reduction but instead to artificially inflate the residual, thus reducing the payments. This gets away from sales tax on that portion, but requires you to pay money factor on the additional $7500.

Be grateful...some states charge sales tax up front on the entire value of the car, even when you're leasing. A few charge it a second time if you buy it out at lease end. I understand that was the original basis for the "owners choice" program...to avoid paying sales tax a second time.

Thanks Michael for your response. Not sure if I sound ungrateful, or rather careful and thorough about understanding what the dealer is presenting to me. I appreciate your feedback.

michaelbmw said:

Be grateful...some states charge sales tax up front on the entire value of the car, even when you're leasing. A few charge it a second time if you buy it out at lease end. I understand that was the original basis for the "owners choice" program...to avoid paying sales tax a second time.

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Texas is this way. It really makes short term leases expensive.