How did Florida tax a long-term vehicle lease after a vehicle leased in another state was moved to and registered in Florida?

Plain-English summary

Florida gave credit for certain mandatory taxes paid to another state before a leased vehicle moved to Florida. The other state's levy had to be a like tax, legally imposed on the lessee, required upfront rather than optional, and nonrefundable when the vehicle left that state.

If the other state's rate was lower than Florida's combined state rate and applicable county surtax, Florida imposed the difference on monthly lease payments while the vehicle was registered and used here. If the other state allowed a refund for the remaining lease term, Florida taxed the Florida-period payments instead.

No credit was available where the other state's law imposed tax on the lessor. A lease clause making the lessee reimburse the lessor did not shift the legal incidence of that tax to the lessee.

What this means for you

For a relocated leased vehicle, the contract's economics are not enough. Credit turns on the other state's actual statute: who legally owed the tax, whether payment was mandatory and upfront, whether it was comparable to Florida's tax, and whether removal created a refund right.

Common questions

Q: Did Florida always tax the full monthly lease payment after relocation? No. A qualifying other-state tax generated a credit.

Q: What if the other state's rate was lower? Florida taxed the rate difference on monthly payments.

Q: What if the other state taxed the lessor? No credit applied, even if the lessee reimbursed that cost under the lease.

Q: Did the ruling address long-term leases? Yes; its questions assumed terms longer than 12 months.

Citations and references

• Fla. Stat. § 212.05(1)(c)2. — long-term motor-vehicle lease payments
• Fla. Stat. § 212.06(7), (10) — credit for like tax paid and vehicle transactions
• Fla. Stat. § 215.26 and Fla. Admin. Code r. 12A-1.014(4) — refund requirements cited
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02A-018

Original ruling text

SUMMARY

QUESTION: For long-term motor vehicle lease agreements
entered into after July 1, 1998, must Florida sales/use tax
be applied to the monthly lease payments on a vehicle that
was leased and registered in another state, prior to being

removed and registered in Florida?

ANSWER - Based on Facts Below: Where the other state

requires the tax to be paid up-front on the full term of

the lease, Florida will allow a credit only when: the other
state requires the tax to be paid up-front, and it is not

an option; the other state lawfully imposes the tax on the
lessee; the other state does not allow a credit or a refund
of taxes paid when the vehicle is removed from that state;
and, the tax imposed by the other state must be a like tax,

as provided in s. 212.06(7), F.S.

If the tax rate of the other state is less than the rate
imposed by Florida, which would include the state tax rate
of 6 percent and the county surtax rate, if applicable, the
monthly lease payments will be subject to the difference of
the tax paid to the other state and the rate imposed by

Florida.

For states where the legal incidence of the tax falls on
the lessor, Florida will not allow a credit even though the
lessee may be contractually obligated to reimburse the

lessor for this expense.

Mar 18, 2002

Re: Technical Assistance Advisement 02A-018
Sales Tax
Motor Vehicles Leased in Other States
Section 212.05(1)(c)2., Florida Statutes
Section 212.06(7), Florida Statutes
Section 212.06(10), Florida Statutes

XXX (Company A)

F.E.l. #
XXX (Company B)
F.E.l. #

Dear :

This is in response to your letter of January 16, 2002, in
which you request the issuance of a Technical Assistance
Advisement regarding sales/use tax issues arising in connection
with leases for motor vehicles originally leased outside
Florida, then brought into Florida during the term of the lease

agreement.

In your request you state: "The principle question is: For
long-term motor vehicle lease agreements entered into after July
1, 1998, must Florida sales/use tax be applied to the monthly
lease payments on a vehicle that was leased and registered in
another state, prior to being removed and registered in

Florida?"

Law and Discussion

Section 212.05(1)(c), F.S., states:

212.05 Sales, storage, use tax.-- It is hereby declared to
be the legislative intent that every person is exercising a
taxable privilege who engages in the business of selling
tangible personal property at retail in this state,

including the business of making mail order sales, or who
rents or furnishes any of the things or services taxable
under this chapter, or who stores for use or consumption in
this state any item or article of tangible personal

property as defined herein and who leases or rents such

property within the state.
(1) For the exercise of such privilege, a tax is levied on
each taxable transaction or incident, which tax is due and

payable as follows:

(c) At the rate of 6 percent of the gross proceeds derived

from the lease or rental of tangible personal property, as
defined herein; however, the following special provisions

apply to the lease or rental of motor vehicles:

2. Except as provided in subparagraph 3., for the lease or
   rental of a motor vehicle for a period of not less than 12
   months, sales tax is due on the lease or rental payments if
   the vehicle is registered in this state; provided, however,
   that no tax shall be due if the taxpayer documents use of
   the motor vehicle outside this state and tax is being paid

on the lease or rental payments in another state.

Section 212.06(7), F.S., states:

The provisions of this chapter do not apply in respect to
the use or consumption of tangible personal property or
services, or distribution or storage of tangible personal
property for use or consumption in this state, upon which a
like tax equal to or greater than the amount imposed by
this chapter has been lawfully imposed and paid in another
state, territory of the United States, or the District of
Columbia. The proof of payment of such tax shall be made
according to rules and regulations of the department. If
the amount of tax paid in another state, territory of the
United States, or the District of Columbia is not equal to

or greater than the amount of tax imposed by this chapter,
then the dealer shall pay to the department an amount
sufficient to make the tax paid in the other state,

territory of the United States, or the District of Columbia
and in this state equal to the amount imposed by this

chapter.

Section 212.06(10), F.S., provides:

No title certificate may be issued on any boat, mobile
home, motor vehicle, or other vehicle, or, if no title is
required by law, no license or registration may be issued
for any boat, mobile home, motor vehicle, or other vehicle,
unless there is filed with such application for title
certificate or license or registration certificate a

receipt, issued by an authorized dealer or a designated

agent of the Department of Revenue, evidencing the payment
of the tax imposed by this chapter where the same is
payable. A presumption of sales and use tax applicability

is created if the motor vehicle is registered in this

state. For the purpose of enforcing this provision, all

county tax collectors and all persons or firms authorized

to sell or issue boat, mobile home, and motor vehicle
licenses are hereby designated agents of the department and
are required to perform such duty in the same manner and
under the same conditions prescribed for their other duties
by the constitution or any statute of this state. All

transfers of title to boats, mobile homes, motor vehicles,

and other vehicles are taxable transactions, unless

expressly exempt under this chapter.

As stated above, s. 212.06(7), F.S., provides a credit for
taxes paid on tangible personal property purchased in another
state and brought into Florida for use in this state. Therefore,
our interpretation of s. 212.05(1)(c)2., F.S., when read in
conjunction with the provisions of s. 212.06(7), F.S., is that
the Department will recognize and give credit for the tax paid
on a long-term lease of a motor vehicle in another state, where
that state requires the tax to be paid up-front, the tax is
imposed on the lessee, and the motor vehicle is subsequently
brought into and registered for use in Florida. However, where
the other state's tax rate is less than the rate imposed by
Florida, inclusive of any local surtax if applicable, the
Department will assess the difference on the monthly lease

payments while the vehicle is registered and used in this state.

Additionally, if the other state allows a refund of previously
paid tax on the remainder of the lease once the vehicle is
removed from that state, the lease payments made while the
vehicle is registered and used in Florida will be subject to

tax.

It has come to the attention of the Florida Department of
Revenue that some states treat long-term leases differently than
rentals for sales and use tax purposes. In these states, the
lessor is considered to be the end user of the leased property

and the one who is responsible for paying use tax when the

property is leased. The lessor is not required to collect sales
tax from the lessee. We have also learned that in some states
laws, nothing prohibits a lessor from increasing the lessee's
monthly payment to recover this tax expense. Therefore, in
these cases, tax is lawfully imposed on the lessor and not on
the lessee (even though the lessee may be contractually
obligated to reimburse the lessor) and credit cannot be allowed

as provided ins. 212.06(7), F.S.

In states where sales tax is imposed up-front on the lessee
at a rate equal to or greater than the rate imposed by Florida,
and a refund of previously paid taxes is not allowed, the
Department would allow a refund of Florida taxes paid on the
lease payments while the vehicle is registered and used in
Florida, provided applicable requirements for receiving a refund
are met in accordance with s. 215.26, F.S., and Rule 12A-
1.014(4), F.A.C.

The following will restate your specific questions and

proposed analysis and our responses:

Questions

For all of the questions raised below, please assume that
the lease agreement is for a term in excess of 12 months

and is entered into on or after July 2, 1998:

(a) A New York resident executes a Closed-End Lease
Agreement for the lease of a motor vehicle for consumer
purposes in New York. As is required in New York, the full
sales tax is paid "up-front". The lessee later moves to
Florida, and registers the leased vehicle in Florida. If

the lessee paid the full amount of the New York tax in cash
at the time of lease execution, must tax be paid on the

lease payments after registration in Florida?

Proposed Analysis: Assuming that the amount of tax paid by
the lessee in New York is equal to or greater than the
amount that would be due in Florida, Section
212.05(1)[(c)]2[., F.S.] is applicable and no further tax

is due.

RESPONSE:

The Department concurs with the proposed analysis. The
Department's interpretation of s. 212.05(1)(c)2., F.S., when
read in conjunction with s. 212.06(7), F.S., is that the
Department will recognize and give credit for the tax paid ona
long-term lease of a motor vehicle in another state, where that
state requires the tax to be paid up-front, the tax is imposed
on the lessee, and the motor vehicle is subsequently brought
into and registered for use in Florida. In particular, the
Department is aware that the long-term lease of motor vehicles

in the State of New York meets these criteria.

(b) Same situation as (a) above, except that the lessee
does not pay the amount of the New York tax at lease
consummation, but asks that it be included in the gross
capitalized cost. The lessor remits the full amount of the

tax upfront, and includes the tax amount in the gross
capitalized cost under the least agreement. If the amount

of the New York tax is included in the gross capitalized

cost under the lease, and amortized over the term of the
lease, must Florida sales tax be paid on the lease payments

after registration in Florida?

Proposed Analysis: Again, because the New York tax was paid
up-front, and the other qualifications stated above are

met, Section 212.05(1)(c)2[., F.S.] allows a full credit

for the lessee. (Section 212.05(1)(c)[2., F.S.] provides,

in part, "... no tax shall be due if... tax is being paid

on the lease or rental payments in another state."

[Emphasis added.]) The fact that the lessor has financed

this amount for the lessee (including the tax amount in the

gross capitalized cost) does not vary the outcome.

RESPONSE:

The Department concurs with the proposed analysis. The tax
is lawfully imposed on the lessee regardless of the financial
arrangement. The same is true when a vehicle is purchased and

financed. The sales tax is paid by the purchaser to the lender

through the installment payments.

(c) Is the answer different, depending upon whether or not
the tax portion is itemized on the monthly billing

statement sent by the Lessor?

Proposed Analysis: Where the amount of the New York tax can
be established, the fact that the amount of tax was

included in the gross capitalized cost (and paid by the

lessee during the term of the lease) and not paid in cash

by the lessee at the time of lease signing should not vary

the outcome - the full amount of tax has been paid in New
York up-front, and Section 212.0512[., F.S.] allows

the lessee credit.

RESPONSE:

The Department concurs with the proposed analysis. The tax
is lawfully imposed on the lessee regardless of the financial

arrangement.

(d) Section 212.05(1)(c)[2., F.S.] allows a credit if the
taxpayer "documents use of the motor vehicle outside this
state and tax is being paid on the lease or rental payments
in another state." [Emphasis added.] What documentation, if
any, must the lessor under the lease agreement obtain from
the lessee documenting "the use of the motor vehicle

outside this state"?

RESPONSE:

A copy of the lease agreement executed in another state
that reflects sales tax paid up-front would be sufficient
documentation for the purposes of s. 212.05(1)(c)2., F.S.

(again, provided all of the criteria as stated above are met).

(e) A consumer lessee enters into a Closed-End Motor
Vehicle Lease Agreement for the lease of a motor vehicle in
Ohio. The vehicle is originally registered and garaged in
Ohio. Sometime later, the lessee removes the vehicle from

Ohio and brings it to Florida, where the vehicle is then

garaged and registered.

Proposed Analysis. The Ohio 124th General Assembly passed
Amended Substitute House Bill 405, which provides that,
effective February 1, 2002, the sales tax on motor vehicle
leases must be computed and paid at the beginning of the
lease rather than on the monthly payments. House Bill 405
amends Section 5739.01(H)(4) to add to the definition of

"Price":

"In the case of the lease of any motor vehicle designed by
the manufacturer to carry a load of not more than one
ton,... or the lease of any tangible personal property,

other than motor vehicles designed by the manufacturer to
carry a load of more than one ton, to be used by the lessee
primarily for business purposes, the sales tax shall be
collected by the vendor at the time the lease is
consummated and shall be calculated by the vendor on the
basis of the total amount to be paid by the lessee under
the lease agreement. If the total amount of the
consideration for the lease includes amounts that are not
calculated at the time the lease is executed, the tax shall
be calculated and collected by the vendor at the time such

amounts are billed to the lessee...."

Further, Section 5739.03 of the Ohio Statutes provides:

Except as provided in section 5739.05 of the Revised Code,
the tax imposed by or pursuant to section 5732.02,
5739.021, 5739.023, or 5739.026 of the Revised Code shall
be paid by the consumer to the vendor, and each vendor
shall collect from the consumer, as a trustee for the state

of Ohio, the full and exact amount of the tax payable on
each taxable sale, in the manner and at the times provided

as follows:...[ ]

Does Ohio (as of February 1, 2002) meet the qualifications
set forth in TAA OOA[-]O60 for excluding Florida sales tax?

RESPONSE:

This office has received confirmation from the Ohio
Department of Taxation, Division of Sales and Use Tax, that
effective February 1, 2002, the sales tax on the long term lease
of a motor vehicle is required to be paid up-front based on the
total amount that will be paid throughout the term of the lease.
Further, the tax is legally imposed on the lessee, and no refund
is allowed for early termination of the lease or if the vehicle
is removed from the State of Ohio. Therefore, for leases
entered into on or after February 1, 2002, in the State of Ohio,
Florida will allow credit for the tax required to be paid up-
front in accordance with the criteria stated in this Technical

Assistance Advisement.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than

expressed in this response.

You are further advised that this response, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names,
addresses and any other details which might lead to
identification of the taxpayer. Your response should be received

by the Department within 15 days of the date of this letter.

Sincerely,

Bonnie Everton

Senior Tax Specialist

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Cont. #48314