Vehicle Taxability - Leasing & Dealers

Leasing and Auto Dealer Transactions

When buying a vehicle from an auto dealer, there are many options available to the consumer.  Here we will provide information on how the sales tax applies to the different transactions that may occur.

 

Leases

A lease is any transfer of the possession or control of tangible personal property for a fixed or indefinite term, for consideration. Leases include future options to purchase or extend, and agreements where the amount of consideration may be increased or decreased by reference to the amount realized upon the sale or disposition of the property.

The link below will take you to a memo drafted by the Ohio Department of Taxation explaining how leases of motor vehicles are taxed.

Leasing Memo

 

Sales to Non-Residents of Ohio

Sales made in Ohio to a non-resident of Ohio that will be immediately removed from this state are generally exempt from Ohio sales tax.  Sales of motor vehicles that will be immediately removed to Arizona, California, Florida, Indiana, Massachusetts, Michigan, and South Carolina are the only sales that are the exception to this rule.  Please see the Information Release for details.

 

The below chart can be used for a quick guide on how to calculate sales tax for these states:

 

 

State

Sales Tax Rate

Trade-In Allowance

Special Provisions

Arizona

6.60%

Yes –New and Used

 

California

7.25%

No

 

Florida

6.00%

Yes- New and Used

 

Indiana

7.00%

Yes-New and Used

Nonresident exemption for RVs and trailers with a load capacity of at least 2200 pounds

Massachusetts

6.25%

Yes-New and Used

 

Michigan

6.00%

No

 

South Carolina

5.00%

Yes-New and Used

Tax cap of $300.00

 

Frequently Asked Questions Tool

The Ohio Department of Taxation has compiled a list of frequently asked questions covering many different categories.

To view the questions, click on the "Select Category" bar and then click on  the category you are interested in.  A list of questions will appear pertaining to that category. Then click on the question you are inquiring about and the answer will appear.

Can a third party purchase a leased vehicle without payment of sales and use tax twice?

Most motor vehicle lease agreements prohibit the sale of a leased vehicle from the leasing company to anyone other than the lessee or to a motor vehicle dealer during the lease term. However, there are times when the leasing company will allow the lessee to sell the leased vehicle to a third party.  In that case, the lessee and the third party should, prior to the transfer of the vehicle, enter into a written agreement providing the following:

(1) The lessee has determined the amount required to purchase the leased vehicle from the leasing company;

(2) The third party agrees to provide the funds to purchase the vehicle from the leasing company and pay the sales and use tax due;

(3) The lessee and the third party understand that the leasing company will obtain the title in the lessee’s name, as required by the lease agreement, and that the sales and use tax payment will be in the name of the lessee; and

(4) The lessee agrees to immediately assign the vehicle over to the third party for a price of $0.00.

The agreement should be in duplicate and signed by each party. Each party should retain a copy of the signed agreement. 

This information is based on the Board of Tax Appeals decision in Sarah B. Yocum v. Lindley, BTA 80-A-501 (July 27, 1981) regarding title transfers involving the Ford A-Plan situation.

Note: If the third party has agreed to pay more than the amount required by the leasing company with the additional amount going to the lessee, the additional amount paid by the third party must be shown as the “price” in the assignment portion of the title between the lessee and the third party. Further, if the lessee purchases the vehicle during the life of the lease or at the end of the lease term and then sells the vehicle, each transfer is a separate sale and sales or use tax is due at the time of each title transfer.

Can a third party purchase a leased vehicle without payment of sales and use tax twice?

Most motor vehicle lease agreements prohibit the sale of a leased vehicle from the leasing company to anyone other than the lessee or to a motor vehicle dealer during the lease term. However, there are times when the leasing company will allow the lessee to sell the leased vehicle to a third party.  In that case, the lessee and the third party should, prior to the transfer of the vehicle, enter into a written agreement providing the following:

(1) The lessee has determined the amount required to purchase the leased vehicle from the leasing company;

(2) The third party agrees to provide the funds to purchase the vehicle from the leasing company and pay the sales and use tax due;

(3) The lessee and the third party understand that the leasing company will obtain the title in the lessee’s name, as required by the lease agreement, and that the sales and use tax payment will be in the name of the lessee; and

(4) The lessee agrees to immediately assign the vehicle over to the third party for a price of $0.00.

The agreement should be in duplicate and signed by each party. Each party should retain a copy of the signed agreement. 

This information is based on the Board of Tax Appeals decision in Sarah B. Yocum v. Lindley, BTA 80-A-501 (July 27, 1981) regarding title transfers involving the Ford A-Plan situation.

Note: If the third party has agreed to pay more than the amount required by the leasing company with the additional amount going to the lessee, the additional amount paid by the third party must be shown as the “price” in the assignment portion of the title between the lessee and the third party. Further, if the lessee purchases the vehicle during the life of the lease or at the end of the lease term and then sells the vehicle, each transfer is a separate sale and sales or use tax is due at the time of each title transfer.

Can a third party purchase a leased vehicle without payment of sales and use tax twice?

Most motor vehicle lease agreements prohibit the sale of a leased vehicle from the leasing company to anyone other than the lessee or to a motor vehicle dealer during the lease term. However, there are times when the leasing company will allow the lessee to sell the leased vehicle to a third party.  In that case, the lessee and the third party should, prior to the transfer of the vehicle, enter into a written agreement providing the following:

(1) The lessee has determined the amount required to purchase the leased vehicle from the leasing company;

(2) The third party agrees to provide the funds to purchase the vehicle from the leasing company and pay the sales and use tax due;

(3) The lessee and the third party understand that the leasing company will obtain the title in the lessee’s name, as required by the lease agreement, and that the sales and use tax payment will be in the name of the lessee; and

(4) The lessee agrees to immediately assign the vehicle over to the third party for a price of $0.00.

The agreement should be in duplicate and signed by each party. Each party should retain a copy of the signed agreement. 

This information is based on the Board of Tax Appeals decision in Sarah B. Yocum v. Lindley, BTA 80-A-501 (July 27, 1981) regarding title transfers involving the Ford A-Plan situation.

Note: If the third party has agreed to pay more than the amount required by the leasing company with the additional amount going to the lessee, the additional amount paid by the third party must be shown as the “price” in the assignment portion of the title between the lessee and the third party. Further, if the lessee purchases the vehicle during the life of the lease or at the end of the lease term and then sells the vehicle, each transfer is a separate sale and sales or use tax is due at the time of each title transfer.