^^^ I don't recall what the tax rate is on new cars but California City and County Sales and Use Tax Rates - Cities, Counties and Tax Rates - California State Board of Equalization lists 8.375% for sales and use tax for Santa Clara County.
Hmm. I guess states are different in the practice then. If I lived in CA, I'd definitely be leasing so I would only have to pay tax on the part of the car I "bought".
I'm no leasing expert as I've never leased before, but I don't think you can get away w/that in CA per My Nissan Leaf Forum • View topic - Lease Termination Options and My Nissan Leaf Forum • View topic - Explain Tax On $7,500 Rebate on Lease Agreement.
I just know here in my state, I pay taxes monthly as part of the payment, so if you do a 36 month lease, and you're payment is 500/mo., you pay $535 a month (7% sales tax).
On a car lease in CA, you pay tax on the part of the car you use. So you pay tax on the monthly lease payment, and any cap reduction (basically an up-front payment you make, which reduces the monthly payment, so it's somewhat of a wash from a tax perspective; the $7,500 Leaf amount in your link above is apparently considered a cap reduction, so it's taxed). But--you don't pay for the part of the car you don't use, i.e., the residual value. For example, my lease residual value was ~$17K, or 58%, so I only pay sales tax on 42%--not the entire sale price (as you would on a purchase).
You are correct that if you lease a car for 3 years you pay around 42% to 50% of the sales tax in your monthly payments. After 3 years you lease again and pay another 42% to 50% sales tax on the next 3 years. If you buy and finance for 5 years with 100% of the tax in the loan and keep the car for 6 years you are paying close to the same amount of tax. The difference is after the 5 years you can sell the car or trade it in for a large down payment on the next car. Or even better keep it another couple of years and save even more. You will have zero car payments and no more tax. With a lease you are stuck in the endless cycle of getting a new car every 3 years and eating 42% to 50% of its value.
I was shocked to see there was a state in the USA that was only charging 3% sales tax. I found it hard to believe, so I looked it up. Here is what I found for your state (New Mexico). http://www.tax.newmexico.gov/SiteCollectionDocuments/2012grt-trt-jul.pdf The average in the state of New Mexico is over 7%. The lowest is 5.5% and the highest is 8.6%. That is nowhere near 3% that was posted. Taking a $2,800 loss on taxes when you trade a new car in after two years plus the $10,000 you lost on deprecation is a lot of money. new car = $25k trade allowance = $15k you pay tax on the $10k left over.
Correct about sales tax, but cars in NM are taxed by what I think is called an excise tax. Believe me; I paid it just a few months ago. I completely agree that car trade-in after just a few years is usually a bad choice money wise, but we might as well be accurate with our numbers. 3% of $10k is $300. If a person is in a state that does not allow a tax credit, and is one of the higher rates in the nation, tax may well be $2000+. Most people fall somewhere in between. The problem here is that dealerships likely give less than competitive trade-in valuations because they know the customer has to deal with them to collect the tax savings. Addendum: New Car Tax in NM
We get it--you don't think leasing is a good idea. We get it. You post about it every chance you get. Beating a dead horse is a bit annoying. My post was not about leasing vs. purchasing--it was responding to another member's post, to clarify how the tax rebate affected sales tax. And BTW--in CA (and many other states) if you buy a car, you pay sales tax on the full purchase price, and when you buy a new car and trade in your old car, you once again pay sales tax on the full purchase price (there's no sales tax credit for the trade-in value). With leasing you only pay sales tax on the portion of the car you use.
You are right. If you lease a car for 3 years you only pay tax on the portion you use. What happens the next 3 years? Most people lease another car and pay a portion of tax on the next 3 years. If you buy a car and finance it with tax included for 5 years. You will not pay tax on the 6th year or make payments. When you sell the car you get a large sum of money back. My point is there is no advantage of buying or leasing when it comes to sales tax.
I do not think you understand what I am posting. With a lease you pay sales tax on every payment. After 3 years you turn the car in and start paying sells tax on the next car for 3 years. When you buy the car you pay all the sales tax up front or you add it to your financing. At 5 years the car is paid for. You no longer pay any more tax. If you keep it for 6 years you have 1 year tax free. If you keep it for 10 years you have 4 years tax free. You can never do this with a lease. You will always keep paying taxes. Also with a lease you eat 45%+ of the depreciation of the car and then give the car back after 3 years. This is foolish on a Toyota Prius. This is the third time I posted the same thing.
Actually, I don't think you understand what I am saying--and I do understand what you're saying, but simply don't agree with it. Comment in bold below.
This must be one of my dense days. What is there not to agree with in the bolded part of Judgeless' post ?
My mistake, I attributed the bolded part to Judgeless. Not much disagreement between you two, at least so far as sales tax is concerned. Judgeless knows that holding on to a car once it is paid off 'saves' sales tax; you know that returning a leased car that still has principal owed on it 'saves' sales tax (until the next car is bought of course.) <shrug>. This is an argument over keeping a car longer than ~ 5 years, not tax per se.
Actually, not exactly as you put it. As I've posted before, in CA and many other states, when you trade in a car (that you paid sales tax on the full price when purchased), you also pay sales tax on the full price of the new car (i.e., no sales tax reduction for the trade-in value). So you've paid sales tax on the portion of the car you sell/trade, but never realize economic value for. With a lease you pay sales tax on the value you use. Get another leased car, again pay sales tax only on the value used.
^^ Well now, that is a curious argument. You are saying the (usual) high depreciation built into leases is an advantage, because the car's value is zip by 5 years or so Quite the silver lining LOL. Joking aside, your argument breaks down because the market depreciation an owner pays for is quite different than the artificial 'depreciation' a lease company sets. Resemblance between the two is accidental. Like leases in general, it is uncommon for them to be a cheaper TCO then outright purchase, but it occasionally happens.
