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.

  

Does a leasing company charge sales tax on the "sale" of its leased vehicles? If so, how is the tax paid to the State of Ohio?

Under Ohio sales and use tax law, a motor vehicle leasing company is required to collect sales and use tax on the “sale” of any of its vehicles, unless the purchaser has a statutory basis for claiming exception or exemption. The leasing company is required to collect the gross amount of sales and use tax based on the rate in effect in the purchaser’s county of residence. The leasing company would then remit the net amount (gross tax less allowable discount) of sales and use tax to any county Clerk of Courts, stating the purchaser’s county of residence so the title can be issued.

In case of an audit by the Ohio Department of Taxation, the leasing company must be able to show that sales and use tax was charged and collected and that this tax was paid to the local Clerk of Courts. Clerks of Courts issue receipts reflecting payment of taxes and associated title fees, which should be retained in the transaction file as evidence that the tax has been paid.

Early Buyout. For leases entered into after Feb. 1, 2002 where a lessee purchases the leased vehicle before the end of the lease, they are allowed credit for part of the sales tax, if the entire amount of sales tax was collected at the beginning of the lease. Part of the buyout purchase price could contain an amount for which tax has already been paid. The Department of Taxation will allow credit for part of the tax paid up front if the following conditions apply:

The sales contract between the leasing company and the lessee/buyer must list a separate amount that represents the present value of the remaining lease payments that are being paid by the lessee. This amount may not exceed the sum of the remaining lease payments. This is an amount for which tax has already been paid. The remainder of the sales contract would list other fees and charges, such as residual value and early termination fees. These items would be subject to the tax.

To determine the tax to be paid to the Clerk of Courts, calculate the entire tax due on the total purchase price of the vehicle, which includes the remaining lease payments, the residual value and any other fees associated with the purchase. Calculate the tax that was previously paid (at the rate in effect when lease began) on the present value of the remaining lease payments. Subtract the previously paid tax from the total tax. Submit the final tax due, less the allowable discount. A copy of the sales contract showing the separable charges must be submitted. If there is no separate line item that represents the present value of the remaining lease payments, no credit allowance will be given.

While a leasing company may not physically obtain the certificate of title for the purchaser (provide paperwork to purchaser and have purchaser obtain his/her own title), the company must ensure payment of the proper amount of tax to the clerks and obtain/retain receipts reflecting the tax payment.