How much Florida sales tax applied when a lessee bought a vehicle without a written purchase option after paying tax on the lease payments?

Plain-English summary

Sales tax applied to the vehicle buyout price only to the extent tax had not already been paid on that amount through lease payments, but the Department could not decide the underlying price dispute.

The lessee believed the original deal included a right to buy the vehicle at the greater of remaining payments or fair market value. The signed lease, however, said there was no purchase option unless the lessor provided one in a separate signed writing. No such writing was established.

Years later, the lessor offered a buyout price that included a vehicle amount, the deposit, and remaining lease payments. The lessee argued that tax already paid with the deposit and monthly payments should reduce the tax due on the purchase.

The rule prevented double tax on the same amount: when an option was exercised, tax was due only on the portion of the purchase price on which lease tax had not been paid. But without a prior written agreement setting the price or a formula, the lessor could set the sales price. The Department could collect tax on the untaxed portion but had no authority to establish a different price or adjudicate how the price should be allocated.

What this means for you

Vehicle lessees

Put purchase rights and the buyout-price formula in a signed writing before taking delivery.

Lessors and dealers

Maintain a clear breakdown showing which buyout amounts have already borne lease tax.

Price disputes

Tax administration does not give the Department authority to rewrite or determine the contract price.

Common questions

Did the signed lease contain a purchase option? No, absent a separate signed writing.

Could amounts already subjected to lease tax be taxed again? No, to the extent they were part of the purchase price and already taxed.

Could the Department set a fair buyout price? No.

What was taxable? The portion of the actual purchase price on which lease tax had not been paid.

Citations and references

• Sections 212.02(16)(a) and (17), Florida Statutes — sale and sales-price definitions.
• Section 212.05(1)(a)1.a., Florida Statutes — tax on retail sales.
• Rule 12A-1.071(8), Florida Administrative Code — tax on operating-lease payments and later option exercise.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 92A-001

Original ruling text

Jan 07, 1992

RE: TAA 92A-001
Purchase of Leased Vehicle
Sections 212.02(16)(a), and (17), 212.05(1)(a)1.a., F.S. Rule 12A-1.071(8), F.A.C.

Dear :

This is in response to your letter of October 29, 1991, together with copies of documents pertaining to the leased vehicle in question. In your letter you requested the issuance of a Technical Assistant Advisement on the proper amount of tax to be collected when you purchase the leased vehicle.

Your letter provides:

FACTS

"1. On or about February 17, 1987, I leased a XXX. The salesperson with whom I dealt was XXX. My understanding with XXX was that the lease would contain a provision that I would be able to purchase the leased vehicle for, as I understood it, the greater of the remaining payments on the lease or the fair-market value of the automobile. It was discussed that I would probably have to keep this car about three years as it would take this long for my buy-out price to equal the fair market value. I took delivery of the vehicle and, for some reason that I do not recall, XXX stated that he would bring me the lease after it was prepared. Some days later, XXX came out to XXX and got me to sign some papers in the parking lot of my office and advised that I would be sent copies of everything. "2. On some date in May, 1987, my accountant requested copies of my lease documents so I, realizing that I had not received them, wrote to XXX for same. They must have been sent shortly thereafter, that as my records show I sent them to my accountant on May 20, 1987. I did not review the lease documents at that time. Attached are copies of

the two-page lease and other documents received at that time. "3. In approximately August of 1989 I went to the XXX dealer and the XXX dealer in XXX and inquired about getting a new car. Both dealers called for a pay-off. As a result, I was advised that I still owed too much to make a trade practical at that time. I was not told the amount of the pay-off. "4. Due to economic conditions I did not think about buying a new automobile until approximately May or June, 1991. At this time, I telephoned XXX and spoke to a XXX. He gave me a pay-off figure of approximately $12,034.00. I computed this amount to equal the fair-market value plus the remaining lease payments. "5. At this point, I realized something was wrong and dug out my lease papers. This was the first time I became aware of the fact that I did not have the right to purchase my automobile. I could not contact the leasing dealer or the salesman as the dealer had gone out of business. "6. On July 16, 1991, I wrote XXX and, after relating the above, advised that I should be able to purchase my automobile for, at most, the loan value. A copy of this letter is attached. "7. On or about July 24, 1991, I received a telephone call from a XXX at XXX in response to the above letter. She informed me that I could purchase my car for $9,324.45. I asked how this was computed and I was told the price of the car was $7,300.00, plus my $450.00 deposit and the remaining six lease payments. I tried to argue that the remaining payments should be forgiven under the circumstances but XXX would not budge. As this was a great deal better than the previous figure, I accepted. After the call was completed I tried to confirm the calculations but was unable as I came up with $9,485.86 rather than
$9,324.45. As I still felt that I should have been paying less I did not give this further thought. "8. Also on or about July 24, 1991, I contacted XXX the XXX and spoke to XXX, a loan officer, in order to finance the purchase. I gave XXX all the information I had and he stated that he would get the rest from XXX. He called me back shortly and said he got a much higher pay-off. I

called XXX and learned that XXX had failed to ask for XXX and had therefore been given the pay-off the computer showed. I advised XXX of this and he contacted XXX and got it straightened out. "9. Around August 13, 1991, I was contacted by the XXX and asked to pick up my title and have the vehicle transferred into my name. At this time, it occurred to me that I might have a sales tax problem so I called the local tax collector. I was told, basically, that the sales price is the sales price. Not satisfied, I called the Department of Revenue. The lady I spoke to advised that I should get something from XXX verifying the sales-price breakdown. "10. On August 13, 1991, I responded to a letter from XXX which requested that I sign and return an enclosed bill of sale. I requested that she re-compute the sales price to conform with the facts. I have never received a response to this letter, a copy being attached, or a follow-up letter. "11. On September 11, 1991, I wrote the Department of Revenue and explained the above facts. On October 2, 1991, I received a response to that letter which implied that I was not being truthful. I was advised that I could request a technical assistance advisement if I was not satisfied.

ARGUMENT

"The lease documents show that I paid sales tax of $20.72 with my deposit and that I was to pay a similar amount with each payment thereafter. These documents show that I was obligated for 60 payments and did not have a purchase option. Simple calculations show that the first payment was made on February 17, 1987, and the last payment would be due in January, 1992. As the purchase agreement was made in July, 1991, the payments for August, September, October, November, December, 1991; and January, 1992, were still due. Multiplying the number of remaining payments by the sales tax on each (6 x $20.72 = $124.32) and adding in the tax paid with the initial deposit ($124.32 + $20.72) shows that I have already paid $145.04 in sales tax.

"There is absolutely no reason to believe that I was

forgiven the remaining payments on my lease. To the contrary, everything indicates that I was held to the full term of the lease. The Department of Revenue has already received $1,243.20 in sales tax on this vehicle and now seeks $559.47 more, for a total of $1,802.67 - which is the sales tax that would be payable on a vehicle costing in excess of $30,000.00, of which there were no XXX in 1987. In fact, the Department is entitled to $414.43 as $145.04 has been prepaid and payment of the duplicated amount would be double dipping."

APPLICABLE AUTHORITY

Section 212.05(1)(a)1.a., F.S., provides:

"212.05 Sales, storage, use tax.- It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, including the business of making mail order sales, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state. "(1) For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable as follows: (a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale."

Section 212.02(16)(a), F.S., provides:

"(16) `Sale' means and includes:
(a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration."

Section 212.02(17), F.S., provides:

"(17) Sales price' means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever.Sales price' also includes the consideration for a transaction which requires both labor and material to alter, remodel, maintain, adjust, or repair tangible personal property. Trade-ins or discounts allowed and taken at the time of sale shall not be included within the purview of this subsection."

Rule 12A-1.071(8), F.A.C., provides:

"(8) Each operating lease payment under a lease purchase or similar agreement which also grants the lessee an option to purchase the tangible personal property is taxable. When the option is exercised and title to the property passes to the lessee-purchaser, no tax is due on that part of the purchase price upon which lease tax has been paid. Only the balance of the purchase price required to be paid by the purchaser upon the exercise of the option is taxable."

DEPARTMENT RESPONSE

We have reviewed the documents pertaining to the lease of the motor vehicle in question together with the information contained in your letter.

A review of section 16, of the lease agreement dated February 17, 1987, between you and the lessor states that the lessee has no option to purchase the vehicle except as otherwise provided in a separate writing signed by the lessor giving such option.

As provided in Rule 12A-1.071(8), F.A.C., when the lessee exercises the option to purchase the leased vehicle, tax is due on that part of the purchase price upon which lease tax has not been paid.

In your attempt to purchase the motor vehicle, the amount of the purchase price is the issue to be resolved. Without evidence of a prior written agreement setting forth an agreed sales price or a method to establish a sales price, the lessor may in effect set any sales price he feels to be in his best interest.

The Department of Revenue is empowered to collect tax on that part of the purchase price upon which the lease tax has not been paid. It has no authority to establish the sales price on the subject leased vehicle for purposes of subtracting the lease payments upon which tax has been paid to arrive at an amount upon which to calculate sales tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response.

Sincerely,

Kathy Henley
Administrator
Technical Assistant

KH/bc