When a motor-vehicle lessor sells the leased vehicle to the lessee at the end of the lease, who is responsible for collecting Colorado sales or use tax?

Plain-English summary

A registered motor-vehicle lessor leases vehicles for 12 months or more, holds title during the lease, and gives the lessee an option to buy the vehicle at fair market value when the lease ends. It asked who is responsible for collecting sales or use tax on that lease-end purchase. The Department's answer: the Company (the seller) collects the tax.

State sales tax. Colorado taxes both the lease and the sale of motor vehicles (§§ 39-26-104(1)(a), 102(23), 713(1)(a), 113). The lessee's purchase at lease end is a taxable sale, and sales tax is due on it. As the seller, the Company is responsible for collecting the state sales tax.

Local tax — depends on jurisdictions. Two cases:

• Same local jurisdiction. If the Company and the buyer are in the same statutory city, county, and/or special district, the Company must also collect the local sales taxes those jurisdictions levy.
• Different jurisdictions. If they're not in the same local jurisdiction, the county clerk for the county where the buyer registers the vehicle collects any local use tax at the time of registration — not the Company.

The Department pointed to FYI Sales 56 (Sales Tax on Leases of Motor Vehicles and Other Tangible Personal Property), FYI Sales 62 (when to collect state-collected local sales tax), and DRP 1002 (the list of local jurisdictions and rates) for working out which local taxes apply.

What this means for you

Vehicle lessors offering lease-end buyouts

The lease-end sale to your lessee is a separate taxable transaction from the lease itself. You collect the state sales tax as the seller. For local tax, check whether you and the buyer sit in the same local jurisdiction: if yes, collect the local sales tax too; if no, leave the local use tax to the county clerk at registration. Use DRP 1002 to confirm rates and jurisdictions.

Lessees buying out a lease

Expect to pay sales tax on the buyout price (here, the vehicle's fair market value). Depending on where you and the lessor are located, the local portion may be collected by the lessor or by the county clerk when you register the vehicle.

Accountants and tax professionals

The "same jurisdiction vs. county-clerk-at-registration" split (FYI Sales 62) is the practical pivot for the local tax on motor-vehicle sales. State sales tax is always the seller-lessor's to collect on the lease-end sale.

Common questions

Q: Who collects Colorado tax when a lessee buys the car at the end of the lease? A: The lessor, as the seller, collects the state sales tax. The local portion is collected by the lessor if the parties share a local jurisdiction, otherwise by the county clerk when the buyer registers the vehicle.

Q: Is the lease-end purchase taxable at all, since tax was already paid on the lease payments? A: Yes. The lease and the sale are separate taxable events; tax is due on the purchase at lease end (here, the vehicle's fair market value).

Q: How do I know which local taxes to collect?
A: Compare your location and the buyer's. If they're in the same statutory city/county/special district, collect those local taxes; if not, the county clerk handles local use tax at registration. DRP 1002 and FYI Sales 62 spell out the details.

Citations and references

Statutes and publications:

• § 39-26-104(1)(a), C.R.S. (sales/use tax); § 39-26-102(23), C.R.S. (lease/rental); § 39-26-713(1)(a), C.R.S. (tax on leases); § 39-26-113, C.R.S. (motor-vehicle tax collection; registration)
• FYI Sales 56 (Leases of Motor Vehicles and Other Tangible Personal Property); FYI Sales 62 (when to collect state-collected local sales tax); DRP 1002 (local jurisdictions and rates)

Related rulings

• [[gil-12-012-non-resident-leases-of-passenger-cars]] — vehicle-lease taxation and registration-driven local tax
• [[gil-11-013-taxability-of-leased-property]] — lessor's collection methods on leases
• [[plr-09-004-private-letter-ruling]] — what's in (and out of) a vehicle rental's tax base

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-005.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2009-005
May 13, 2009
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: sales tax responsibility for motor vehicle leases
Dear XXXXXXXXXXXXXXXX,
You have requested guidance regarding whether the XXXXXXXXXXXXXXXXXXXXXX ( “Company”), who is a lessor and seller of motor vehicles, has responsibility for collecting sales or use tax on the sale and purchase of a motor vehicle to the lessee/purchaser at the expiration of the motor vehicle lease. The Department issues general information letters and private letter rulings. A general information letter provides a general overview of the applicable tax law, does not provide a specific determination, and is not binding on the department. A private letter ruling is a determination of the applicability of tax to a specific set of circumstances and is binding in the department. A party requesting a private letter ruling must provide certain information and remit a fee. For more information about general information letters and private letter rulings, please refer to the Department’s regulation 24-35103.5, C.R.S., which is available on our web site at: www.colorado.gov/revenue/tax. I will initially treat your request as one for a general information letter because the request does not contain the information necessary for a private letter ruling. You may resubmit this request as a request for a private letter ruling. Issue Is the Company, as a lessor/seller of a motor vehicle, responsible for collecting sales or use tax when it sells a motor vehicle to the lessee/purchaser at the expiration of the motor vehicle lease?

1 37 5 S HE R MA N S TR E E T
D E N VE R , C O L OR A DO 8 020 3

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July 2, 2009

Background
The Company is equipment and registered motor vehicle lessor. The Company leases motor vehicles for a period of twelve months or more. At the expiration of a lease, the lessee has the option to purchase at the fair market value the vehicle from the Company. The Company holds title to the motor vehicle during the term of the lease. Discussion Colorado levies sales and use tax on the lease and sale of motor vehicles. §§39-26104(1)(a), 102(23), 713(1)(a), and 113, C.R.S. Sales tax is due on the sale of the motor vehicle at the expiration of the lease. The Company, as the seller, is responsible for collecting state sales tax. If the Company and purchaser are located in the same local jurisdiction (e.g., a statutory city, county, and/or special district), then the Company must also collect the local sales taxes levied by such jurisdictions. If the Company and purchaser are not in the same local jurisdiction, then the county clerk for the county in which the vehicle is registered by the purchaser will collect local use tax, if any, at the time the vehicle is registered to the purchaser. See, Department publications FYI Sales 56 (Sales Tax on Leases of Motor Vehicles and Other Tangible Personal Property) and 62 (Guidelines for Determining When to Collect State-Collected Local Sales Tax). The Department has a number of resources available to retailers on the Department’s web site, including Department publication DRP 1002 (listing of all local jurisdictions that levy sales and use tax and their rates), automated systems that list local sales tax rates, forms, as well as a variety of FYIs and regulations on sales and use tax issues. You can easily access these at: www.revenue.state.co.us > Tax. Miscellaneous Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted version of the ruling will be made public within 60 days of the date of this letter. Please let me know in writing within that 60 day period whether you have any suggestions or concerns about this redacted version of the ruling. Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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