On an automobile lease with a purchase option, is sales tax due on the down payment, and who is responsible for collecting the tax on the full lease price?

Plain-English summary

In May 1987, Leonard R. Landis arranged to acquire a $31,000 Mercedes from a dealership through a lease with a purchase option rather than an outright purchase. He paid a $23,000 down payment, made twenty-four monthly "rent" payments of about $240 (plus roughly $17 tax on each), and paid an $8,000 "balloon" at the end. Landis says the salesman told him this structure would let him defer the roughly $2,300 sales tax, and that the tax was built into the monthly payments; the leasing company denied that and, after Landis paid everything and asked for the title, refused to hand it over and sued him for the sales tax. The lease documents were silent on sales tax except for the tax on the monthly charges. Landis asked whether sales tax was payable upon making the down payment.

The Department's holdings:

• Tax is due on the full lease price, collected on each payment. Under Tax Law § 1105(a) and the prior opinions Auto Rental Corporation, TSB-A-83(25)S and Marine Midland Automotive Financial Corp., TSB-A-88(32)S, sales tax on an automobile lease is due on the full amount of the lease price and must be collected on each payment made under the lease (including portions attributable to depreciation and projected maintenance).
• The lessor/vendor must collect it. Under Tax Law § 1131(1), the lessor/vendor — here the leasing company — is the "person required to collect tax" and is responsible for collecting the tax on the full lease price.
• The factual dispute isn't for an Advisory Opinion. Whether the leasing company actually collected the sales tax from Landis is a question of fact that an Advisory Opinion cannot resolve — such an opinion only applies the law to a specified set of facts (Tax Law § 171(24); 20 NYCRR § 901.1(a)).
• The rule changed for later leases. For motor-vehicle leases of one year or more executed on or after June 1, 1990, Tax Law § 1111 (as amended) treats all receipts for the entire lease term as taxable as of the first payment (or the date the vehicle is registered, if earlier) — i.e., the whole lease is taxed up front, not payment-by-payment.

What this means for you

A lease with a purchase option is still taxed as a lease

Calling the deal a lease (with an option to buy) doesn't reduce the tax base: the full lease price is subject to tax. Under the old, pre-June-1990 rule, that tax was spread across the payments and collected on each one.

The leasing company — not the customer — collects the tax

New York makes the vendor/lessor the party legally required to collect and remit sales tax (§ 1131(1)). A customer's belief that "the tax was in my monthly payment" is a private billing dispute; the collection duty sits with the lessor.

Timing rule flipped on June 1, 1990

If you're looking at a newer vehicle lease (one year or longer, signed on or after June 1, 1990), don't apply this payment-by-payment approach — § 1111 requires the tax on the entire lease to be charged at inception (first payment or registration, whichever is earlier).

The Department won't referee "was the tax actually collected?"

Whether a specific dealer or lessor in fact charged and collected the tax is a factual dispute for the parties (and courts), not something an Advisory Opinion decides.

Common questions

Q: On an older (pre-June-1990) auto lease, when was the sales tax due?
A: On the full lease price, collected on each payment as it was made (Tax Law § 1105(a); Auto Rental TSB-A-83(25)S; Marine Midland TSB-A-88(32)S).

Q: Who is responsible for collecting the tax — me or the leasing company?
A: The leasing company. As the lessor/vendor it is the "person required to collect tax" under § 1131(1).

Q: Did the June 1990 change affect this?
A: Yes, going forward. For motor-vehicle leases of a year or more signed on or after June 1, 1990, § 1111 taxes all lease receipts up front as of the first payment (or registration, if earlier).

Q: Can an Advisory Opinion decide whether the dealer actually collected my tax?
A: No. That's a question of fact; an Advisory Opinion only applies the law to a stated set of facts.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — imposes tax on receipts from sales, including rentals, of tangible personal property.
• Tax Law § 1131(1) — the lessor/vendor is a "person required to collect tax."
• Tax Law § 1111 (amended effective June 1, 1990) — for motor-vehicle leases of one year or more, all lease receipts are taxed as of the first payment or vehicle registration, whichever is earlier.
• Tax Law § 171(24); 20 NYCRR § 901.1(a) — an Advisory Opinion applies the law to a specified set of facts.

Prior opinions applied:

• Auto Rental Corporation, TSB-A-83(25)S — tax collected on each lease payment, including depreciation and maintenance portions; end-of-term charges also taxable.
• Marine Midland Automotive Financial Corp., TSB-A-88(32)S — full lease price is taxed; lessor is responsible for collecting the tax.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_57s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (57)S
Sales Tax
August 20, 1991

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910523A

On May 23, 1991, a Petition for Advisory Opinion was received from Leonard R. Landis, 10
East 40th Street, New York, New York 10177.
The issue raised by Petitioner, Leonard R. Landis, is whether sales tax was payable upon
making the downpayment where a lease of an automobile, with an option to purchase, for $31,000
was executed, with a $23,000 down payment, an $8,000 "balloon", and twenty-four intervening
monthly payments of "rent".
In May, 1987, Petitioner entered the showroom of Sport Leasing, a Mercedes dealership in
Southampton, New York, and indicated he was interested in buying a white car. Petitioner was
shown a demonstrator model and told that the purchase price was $31,000. Petitioner responded
that, provided it drove properly, he was prepared to buy it at that price.
Petitioner contends that the salesman stated that there would be a sales tax of approximately
$2,300 payable, but that the tax could be deferred in the following fashion: Petitioner would pay a
downpayment of $23,000 with an additional $8,000 deferred for approximately two years, and in the
interim he would pay a monthly "rental" payment of $240 plus a sales tax thereon of approximately
$17. The 24 payments aggregating approximately $5,000, would cover $1,582 representing the
interest on the deferred $8,000, Petitioner's maintenance contract cost of $1,500 and the sales tax of
approximately $2,300. Petitioner agreed and entered into a purchase order and a lease option
agreement.
After Petitioner had made all payments, that is the $23,000 payment, plus the 24 monthly
payments of "rent" and the $8,000 "balloon", Petitioner requested the title of the car. The leasing
company refused to deliver the title on the ground that Petitioner had not paid the sales tax.
Petitioner responded by saying that the sales tax was included in the monthly payments. The leasing
company denied that it had ever had such a discussion with Petitioner. The lease documents were
silent on the subject of sales tax other than the tax on the monthly charges.
The leasing company has now sued Petitioner for the sales tax.
Section 1105(a) of the Tax Law imposes sales tax on the receipts from sales (including
rentals) of tangible personal property.
Section 1131 of the Tax Law states, in part, as follows:
"(1) 'Persons required to collect tax' or 'person required to collect any tax imposed by
this article' shall include every vendor of tangible personal property or services;. . ."
In Auto Rental Corporation, Adv Op St Tx Comm, May 27, 1983, TSB-A-83(25)S the State
Tax Commission advised that ". . .tax must be collected on each payment under the lease, including

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TSB-A-91 (57)S
Sales Tax
August 20, 1991
those portions attributable to depreciation and projected maintenance expenses. Additional charges
made at the conclusion of the lease term for excess maintenance costs or depreciation are part of the
sale price and are also subject to tax."
In Marine Midland Automotive Financial Corp., Adv Op Comm T&F, June 8, 1988, TSB-A­
88(32)S the Commissioner of Taxation and Finance advised that". . .the full amount of the lease
price of the vehicle (i.e. all payments under the lease plus the value of the vehicle transferred to the
dealer) is subject to tax. The value of the vehicle transferred to the automobile dealer may not be
used to reduce the full lease amount subject to tax. Additionally, Petitioner as the lessor is
responsible for collecting sales tax on the full price of the lease described herein."
Accordingly, for periods prior to June 1, 1990 pursuant to Section 1105(a) of the Tax Law,
TSB-A-83(25)S and TSB-A-88(32)S sales tax is due on the full amount of the lease price of the
vehicle and must be collected on each payment made under the lease. In addition, pursuant to Section
1131(1) of the Tax Law and TSB-A-88(32) the lessor/vendor is responsible for collecting sales tax
on the full lease price.
The dispute between Petitioner and Sport Leasing as to whether Sport Leasing collected the
sales tax from the Petitioner is a question of fact not susceptible of determination in an Advisory
Opinion. An Advisory Opinion merely sets forth the applicability of pertinent statutory and
regulatory provisions to "a specified set of facts." Tax Law 171, subd. twenty-fourth; 20 NYCRR
901.1(a).
It should be noted that Section 1111 of the Tax Law, amended effective June 1, 1990, applies
sales tax to automobile leases executed on or after such date as follows:
(i) Notwithstanding any contrary provisions of this article or other law, with respect
to any lease for a term of one year or more of (1) a motor vehicle, as defined in
section one hundred twenty-five of the vehicle and traffic law, with a gross vehicle
weight of ten thousand pounds or less,. . .or an option to renew such a lease for a
period of one year or more or a similar contractual provision, the exercise of which
would extend the term of such a lease for a period of one year or more, all receipts
due or consideration given or contracted to be given for such property under and for
the entire period of the lease, option or similar provision, or combination of them,
shall be deemed to have been paid or given and shall be subject to tax, and any such
tax due shall be collected, as of the date of the first payment under the lease, option
or similar provision, or combination of them, or as of the date of registration of such
property with the commissioner of motor vehicles, whichever is earlier. (Emphasis
supplied)

DATED: August 20, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.