When a leased vehicle is sold (for example, the lessee buys it at the end of the lease), who collects the Kansas sales or use tax?

Plain-English summary

This 1993 Departmental Memorandum from the Department's Tax Policy Group answers a question from the Taxpayer Assistance Bureau: "Should vehicle leasing companies collect Kansas sales tax(es) on the sale of leased vehicles?" The answer turns on whether the leasing company is a licensed Kansas vehicle dealer.

If the lessor holds a valid Kansas Vehicle Dealers License (issued under K.S.A. 8-2403), it collects the Kansas sales tax on the purchase price when the vehicle is sold and issues the buyer a completed STD-8. The memo describes the common case where "the lessee of a motor vehicle or trailer exercise an option to purchase the vehicle or trailer at the end of the lease" — the licensed-dealer lessor "shall collect the sales tax on the purchase price ... and issue the purchaser a completed STD-8." The buyer then shows the STD-8 to the county treasurer as proof the tax was collected.

If the lessor does not hold a Kansas Vehicle Dealers License, it "are not authorized to collect the sales/compensating (use) tax upon the sale of the vehicle." In that case "[t]he purchaser must remit the appropriate sales/compensating (use) tax to the county treasurer upon application for certificate of registration or ownership." The memo explains the reason: "only Kansas Vehicle Dealers are authorized to collect sales/compensating (use) tax on the sale of motor vehicle or trailer and issue an STD-8."

The memo also restates two background rules: since July 1, 1982, out-of-state motor-vehicle retailers can no longer collect Kansas compensating tax on vehicles to be registered here (the buyer pays the county treasurer at registration), but lessors continue collecting Kansas compensating tax on the rental or lease payments during the lease itself.

What this means for you

Vehicle leasing companies that ARE licensed Kansas dealers

When you sell a leased vehicle — including a lessee's end-of-lease purchase — collect Kansas sales tax on the purchase price and give the buyer a completed STD-8. You are the party responsible for collecting the tax on that sale.

Vehicle leasing companies that are NOT licensed Kansas dealers

Do not collect Kansas sales or use tax on the sale of the vehicle; you are not authorized to issue an STD-8. The buyer will pay the tax to the county treasurer at registration. You do, however, still collect Kansas compensating tax on the lease payments during the lease.

Someone buying a car out of a lease

Whether tax is collected up front depends on the seller. If you buy from a licensed dealer, expect tax to be charged at the sale (with an STD-8). If you buy from a non-dealer lessor, be prepared to pay the sales/compensating (use) tax yourself to the county treasurer when you register the vehicle.

Common questions

Q: Does every leasing company collect Kansas sales tax when it sells a leased vehicle?
A: No. Only a lessor holding a valid Kansas Vehicle Dealers License (K.S.A. 8-2403) is authorized to collect the tax and issue an STD-8. A non-dealer lessor cannot collect it.

Q: If the seller doesn't collect the tax, does that mean no tax is due?
A: No. When a non-dealer lessor sells the vehicle, the buyer must remit the appropriate Kansas sales/compensating (use) tax to the county treasurer when applying for the certificate of registration or ownership.

Q: What is an STD-8?
A: It is the form a licensed Kansas vehicle dealer completes and gives the buyer as proof that the appropriate Kansas sales tax was collected on the vehicle; the buyer presents it to the county treasurer at registration.

Q: Is tax charged on the lease payments too?
A: Yes. The memo notes that lessors continue to collect Kansas compensating tax on the rental or lease payments — that is separate from the tax treatment of an eventual sale of the vehicle.

Citations and references

• K.S.A. 8-2403 — the Kansas Vehicle Dealers License statute the memo cites; only a lessor holding this license may collect the sales/compensating (use) tax on the sale of a motor vehicle or trailer and issue an STD-8.
• STD-8 — the form a licensed Kansas dealer issues to a vehicle buyer as proof that Kansas sales tax was collected, presented to the county treasurer at registration.
• July 1, 1982 change — the memo notes that, as of this date, out-of-state motor-vehicle retailers are no longer authorized to collect Kansas compensating tax on vehicles to be registered in Kansas; the purchaser pays the county treasurer at registration.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: MEMO-SaleofLeasedVehicles

Original ruling text

Memorandum

Body:

MEMORANDUM

TO: Marilyn Foster, Tax Examiner
Taxpayer Assistance Bureau

FROM: Thomas P. Browne, Jr., Tax Specialist
Tax Policy Group

RE: Sale of Leased Vehicles

DATE: September 30, 1993

Should vehicle leasing companies collect Kansas sales tax(es) on the sale of leased vehicles?

As of July 1, 1982, out-of-state retailers of motor vehicles or trailers were no longer authorized to collect the Kansas compensating tax upon their sales of motor vehicles or trailers which are to be registered in this state. All purchasers of motor vehicles or trailers purchased from an out-of-state retailer are required to pay Kansas compensating tax and a local compensating tax, if applicable, to the county treasurer at the time of registration within this state. However, retailers who rent or lease motor vehicles or trailers are to continue collecting the Kansas compensating tax on the rental or lease payments.

In situations where the lessee of a motor vehicle or trailer exercise an option to purchase the vehicle or trailer at the end of the lease, a seller who holds a valid Kansas Vehicle Dealers License, pursuant to KSA 8-2403, shall collect the sales tax on the purchase price, and shall collect the appropriate Kansas sales tax(es) on the purchase price and issue the purchaser a completed STD-8. The new owner should present the STD-8 to the county treasurer upon application for certificate of registration or ownership as proof that the appropriate Kansas sales tax(es) has been collected.

Lessors of motor vehicles or trailers who do not hold a Kansas Vehicles Dealers License, are not authorized to collect the sales/compensating (use) tax upon the sale of the vehicle. The purchaser must remit the appropriate sales/compensating (use) tax to the county treasurer upon application for certificate of registration or ownership.

The reason non-dealers can not collect the appropriate sales/compensating (use) tax on the sale of a motor vehicle at the end of a lease is that only Kansas Vehicle Dealers are authorized to collect sales/compensating (use) tax on the sale of motor vehicle or trailer and issue an STD-8.

Date Composed: 10/06/1997 Date Modified: 10/09/2001

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