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Discussion Starter · #1 ·
I have spent hours researching leasing on this site and am about to sign for an ED 530xit. I have used the calculators posted here and think I have done a good job working the deal.
Something has just popped up that has not been discussed here (that I can find anyway):
The BMW lease worksheet has a line for "tax on cap reduction" and the dealer has put an amount into his list. Ignoring, please, any discussion of the wisdom of a cap reduction, can someone please tell me why I should have to pay any tax on my up-front cash? What is this tax and how is it calculated? :dunno:

Thanks for your help.
 

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Tax on Cap Cost Reduction

Please note that this post varies by state and all states have different laws.

The dealer is probably correct about that. On a lease you pay tax as you go. For example if your depreciation and rent charge totals $693.39 per month, then you would add your sales tax of (lets say 7%) $48.54 which would total $741.93. Since you pay as you go, your upfront cap cost reduction or (Down Payment) is a payment toward your lease. This tax may also be charged on Doc Fees. This ofcourse also varies by states.

Georgia charges a State Tax of 4% and the county tax varies from 1% to 3%.

So you pay 5%, 6%, or 7%

Multiple your cap cost reduction plus your doc fee by whatever your state and county tax rate is and that is the accurate tax.

Unfortunately States vary so much I cannot keep up with every state.

Hope this helps.

Rodney
 

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Discussion Starter · #3 ·
seems unfair but makes sense

Thanks for the explanation. Seems unfair though. If a cap reduction is intended to lower the "purchase price" of the car, then why would you have to pay the state and local govt taxes for something you didn't buy, i.e. the higher sales price? Kinda like paying sales tax on the full price at a discount store.
 

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Happily Driving
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Hey Rodney- Good to see you on Bimmerfest! Say hi to my buddy Adrian! :)

RODNEYOROURKE said:
Please note that this post varies by state and all states have different laws.

The dealer is probably correct about that. On a lease you pay tax as you go. For example if your depreciation and rent charge totals $693.39 per month, then you would add your sales tax of (lets say 7%) $48.54 which would total $741.93. Since you pay as you go, your upfront cap cost reduction or (Down Payment) is a payment toward your lease. This tax may also be charged on Doc Fees. This ofcourse also varies by states.

Georgia charges a State Tax of 4% and the county tax varies from 1% to 3%.

So you pay 5%, 6%, or 7%

Multiple your cap cost reduction plus your doc fee by whatever your state and county tax rate is and that is the accurate tax.

Unfortunately States vary so much I cannot keep up with every state.

Hope this helps.

Rodney
 

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Will do to Adrian ....

And remember cap cost reduction is not lowering the selling price, its lowering your Adjusted Cap Cost or (Amount Financed). If Cash down lowered selling prices then paying cash for a car would keep you from paying any sales tax at all.

Personally I don't like any taxes... :cry:

Have a great night and enjoy your new car....

Rodney
 

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It isn't really reducing the purchase price. It's actually nothing more than a prepaid lease cost, which is subject to tax just as the rest of your lease costs are. Imagine if it weren't taxed, and you paid enough cap reduction so that your monthly lease payments were zero!

I'm curious, though, why you have to pay sales tax on the portion of the lease that relates to the time while your car is in Europe. That doesn't seem fair to me.

IXinCO said:
Thanks for the explanation. Seems unfair though. If a cap reduction is intended to lower the "purchase price" of the car, then why would you have to pay the state and local govt taxes for something you didn't buy, i.e. the higher sales price? Kinda like paying sales tax on the full price at a discount store.
 

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The bigger question is why am I paying sales tax on the INTEREST portion of my lease? People who buy their cars outright only pay the tax on the principal value of the car.
How come the tax isn't based on the "principal portion" of the payment instead of the whole payment?? I think it's the biggest tax rip-off EVER!
 

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It's a lousy explanation but it's because it's not interest, it's a rental charge.

MARCUS330i said:
The bigger question is why am I paying sales tax on the INTEREST portion of my lease? People who buy their cars outright only pay the tax on the principal value of the car.
How come the tax isn't based on the "principal portion" of the payment instead of the whole payment?? I think it's the biggest tax rip-off EVER!
 

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There's a very logical reason for this. You're getting the use of the government's money by not having the pay the tax upfront as you would if you purchased the car. So, since you're paying it later, you have to pay interest on it. Or viewed another way, you have to pay tax on the interest.

MARCUS330i said:
The bigger question is why am I paying sales tax on the INTEREST portion of my lease? People who buy their cars outright only pay the tax on the principal value of the car.
How come the tax isn't based on the "principal portion" of the payment instead of the whole payment?? I think it's the biggest tax rip-off EVER!
 

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If you get too cold, I'll tax your heat.
If you have to walk, I'll tax your feet.
If 5% it seems too small,
Be thankful I don't take it all.
I'm the Taxman.
 
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