When someone assumes an existing long-term car lease, is sales tax due again on the remaining payments even though the original lessee already prepaid all the lease's sales tax?

Plain-English summary

Someone assumed an existing long-term car lease (more than a year left on it). The original lessee had prepaid all the sales tax on the lease at the outset, financed into the monthly payments. The person taking over (the assignee) was charged a one-time assumption fee and is responsible for the remaining payments; the leasing company still holds title. The question: is sales tax due again on the assumption? The Department said yes.

A lease assumption is a new taxable sale. New York taxes retail sales of tangible personal property (Tax Law § 1105), and "sale" is defined broadly to include a transfer of title or possession, including a lease, for consideration (Tax Law § 1101(b)(5)). It doesn't matter that the leasing company keeps title — possession transferred to the assignee in exchange for assuming the payments, so it's a separate, distinct taxable sale from the original lease.

Tax is on the remaining payments + fees. For a motor-vehicle lease of a year or more, all the lease receipts are deemed paid at the first payment, and tax is collected then (Tax Law § 1111(i)(A)). On the assumption, the assignee owes sales tax on the amount remaining for the balance of the term, plus any transfer/acquisition fees paid as part of the assumption.

No credit for the original lessee's prepaid tax. Because all lease payments were deemed paid (and taxed) at the start, the original lessee gets no refund on early termination, and the assignee gets no credit for that tax (20 NYCRR 527.15(e)). Vehicles are frequently resold and re-leased, and sales tax applies to each transaction (Matter of Greenfield; Matter of Moerdler; Matter of Miehle). The fact that the original lease financed the tax doesn't change the rule.

What this means for you

Anyone taking over (or transferring) a car lease

A lease swap is taxed like a new transaction in New York. If you assume a long-term vehicle lease, expect to pay sales tax on the remaining lease payments plus any assumption/transfer/acquisition fees — even though the person you're taking over from already paid tax on the same lease. There's no pass-through credit for their prepaid tax.

Original lessees: no refund on early exit

Because long-term lease tax is all due up front, terminating early doesn't get you a refund of the tax on payments you'll never make. Factor that into the economics of getting out of a lease.

Accountants and tax professionals

Treat each assumption as a fresh § 1101(b)(5) sale; the base is the remaining payments plus fees, with tax due at assumption (§ 1111(i)(A) governs the original lease's up-front timing). No credit/refund flows between lessee and assignee (527.15(e); Greenfield/Moerdler/Miehle).

Common questions

Q: If I take over someone's car lease, do I pay sales tax even though they already paid it?
A: Yes. The assumption is a new taxable sale (transfer of possession), so you owe tax on the remaining lease payments and any transfer/acquisition fees, with no credit for the original lessee's prepaid tax.

Q: The leasing company keeps the title — why is it a "sale"?
A: New York defines "sale" to include the transfer of possession, not just title. Possession passed to you, so it's a taxable sale regardless of who holds title.

Q: What's the tax base on the assumption?
A: The amount remaining due for the balance of the lease term, plus any transfer or acquisition fees you pay as part of the assumption.

Q: Does the original lessee get a refund?
A: No. For long-term leases, all payments are deemed paid (and taxed) at the first payment, so there's no refund on early termination and no credit to the assignee.

Q: Can I rely on this opinion?
A: Not as binding. A TSB-A advisory opinion binds the Department only as to the petitioner and the exact facts described. Use it to understand the reasoning, then check your own facts.

Citations and references

New York Tax Law and regulations:
- Tax Law § 1105 — sales tax on retail sales of tangible personal property
- Tax Law § 1101(b)(5) — "sale" includes transfer of title or possession, including a lease
- Tax Law § 1111(i)(A) — all long-term vehicle lease receipts are deemed paid at the first payment
- 20 NYCRR 525.2 — transfer of possession; 20 NYCRR 527.15(e) — no credit/refund on lease assumption or early termination

Case law cited:
- Matter of Greenfield (Tax Appeals Tribunal, 2019); Matter of Moerdler (2001, aff'd 298 AD2d 778); Matter of Miehle (2000) — tax applies to each lease transaction; no credit for prior tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao.htm
• Opinion: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales/24-25s.htm
• Printer-friendly PDF: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a24-25s.pdf

Original ruling text

Sales Tax
August 2, 2024
Office of Counsel

The Department of Taxation and Finance received a Petition from [ redacted ] (“Petitioner”). Petitioner asks whether sales or use tax is due on the transfer of a lease of a motor vehicle, where the monthly installment payment being assumed includes a portion of the sales tax calculated at the inception of the lease.

We conclude that sales tax is due upon assumption of the lease on the amount that remains due for the balance of the lease term, including any transfer or acquisition fees paid by the assignee as part of the lease assumption.

Facts

An individual leased a personal use vehicle from a dealership for a term of one year or more, and financed the lease through the dealership’s finance/leasing company. The entire amount of sales tax due on the original lease was paid by the original lessee at the outset of the long-term lease and was financed as part of the lease agreement. The financed amount reflecting the sales tax paid was included in the monthly installment payment.

During the term of the lease, the original lessee transferred the lease to Petitioner. The title to the vehicle remained in the leasing company. Petitioner was charged a one-time assumption fee and is responsible for the remaining monthly lease payments. More than one year remained on the lease at the time it was transferred to Petitioner.

Analysis

Sales tax is imposed on all receipts from the retail sale of tangible personal property. See Tax Law § 1105. Tax Law § 1101 (b) (5) explicitly defines “sale” to include the transfer of title or possession or both, including a rental or lease, in any manner or by any means whatsoever for a consideration, or any agreement therefore. Because the definition of “sale” includes either the transfer of title or the transfer of possession, it is irrelevant that the vehicle’s title remains in the leasing company. Here, upon assumption of the lease, possession of the vehicle was transferred to Petitioner; therefore, it is a sale for sales tax purposes.

With respect to any lease of a motor vehicle for a term of one year or more, all receipts due for a leased vehicle for the entire period of the lease are deemed to have been paid at the time of the first lease payment, and the sales tax due must be collected on those receipts at that time. See Tax Law § 1111 (i) (A).

While the Petitioner points out that the entire amount of sales tax due and owing for the long term-lease was paid by the assignor at the beginning of the lease, that fact has no effect on the tax due by Petitioner on the lease assumption of the remainder of the lease. When an existing long-term lease agreement is assumed by an assignee, the transfer of possession of the vehicle, in consideration for assuming the remaining lease payments, is a taxable sale, separate and distinct from the initial lease. See Tax Law §1101 (b) (5) and 20 NYCRR 525.2. No refund or credit is due to the initial lessee on the early termination of a lease, because all of the payments for the lease are deemed to have been paid in the first lease payment, and the tax on all the lease payments is due at that time. See 20 NYCRR 527.15(e); Matter of Michael Greenfield, Tax Appeals Tribunal, June 6, 2019; Matter of Moerdler, Tax Appeals Tribunal, April 26, 2001, confirmed 298 AD2d 778 (3d Dep’t 2002); Matter of Miehle, Tax Appeals Tribunal, August 24, 2000. Vehicles are frequently resold and re-leased during their useful lives and sales tax liability occurs on each transaction. See Id. A party assuming a lease does not receive credit for the tax paid by the original lessor. See 20 NYCRR 527.15(e). The fact that the initial lease included the sales tax due in the financed amount does not change this rule. The party assuming the lease is required to pay sales tax on the remaining lease payments.

DATED: August 2, 2024

Mary Ellen Ladouceur
Principal Attorney

Note: An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth therein and is binding on the Department only with respect to the person or entity to whom it is issued and only if the person or entity fully and accurately describes all relevant facts. An Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date the Opinion is issued or for the specific time period at issue in the Opinion. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.