Is New York sales tax charged on the federal luxury tax when a car is bought or leased, and how does it work on a lease?

Plain-English summary

Robert Stillman, C.P.A., asked whether New York sales tax is imposed on the federal luxury tax (the federal retail excise tax on certain luxury items under 26 U.S.C. ch. 31) — and whether sales tax must be collected on the entire lease payment when that payment includes the federal luxury tax. He gave three examples using a $40,000 car: an outright purchase with the luxury tax stated separately; a 3-year lease with all taxes in the monthly payments; and a 3-year lease where sales tax and luxury tax are paid up front.

The Department's answers:

• Separately stated luxury tax is excluded from the sales-tax base. A "receipt" is the sale price/charge for taxable property or services (§ 526.5(a)). Regulation § 526.5(b)(2) provides that excise taxes imposed on the consumer are excluded from the receipts on which sales tax is computed, and it lists the federal retail excise taxes under 26 U.S.C. ch. 31. So the federal luxury tax is not part of the taxable receipt on a purchase or lease where it is separately stated and paid by the purchaser.
• Leases: tax at inception, then it depends on the lessor's option. Since June 1, 1990, § 1111 requires sales tax on certain motor-vehicle leases to be computed and collected at the inception of the lease (on all receipts for the whole lease term), not on each payment. Whether the luxury tax is factored into that base depends on the lessor's luxury-tax payment option:
  • A lessor that pays the luxury tax when it purchases the vehicle may not exclude that tax expense from the lease charge when computing sales tax on the customer's lease payment.
  • A lessor that remits the luxury tax with each lease payment may separately state the luxury-tax component and compute sales tax the same way as on an outright sale (excluding it).

What this means for you

Separately stated federal excise tax isn't taxed again by New York

New York doesn't charge sales tax on a federal retail excise tax imposed on the consumer (including the luxury tax) when it's separately stated. Keep it as its own line item and it stays out of the sales-tax base.

On a car lease, how the lessor pays the luxury tax matters

Because a lessor that prepays the luxury tax when buying the vehicle folds that cost into the lease and can't back it out, that lessor's lease payments effectively carry sales tax on the luxury-tax cost. A lessor that passes the luxury tax through with each payment can keep it separately stated and out of the sales-tax base.

Vehicle leases are taxed up front in New York

Since June 1, 1990, sales tax on qualifying motor-vehicle (and vessel/noncommercial-aircraft) leases is due at the inception of the lease on the total of the lease receipts, not payment-by-payment — a timing rule to keep in mind when structuring a lease.

Common questions

Q: Does New York charge sales tax on the federal luxury tax?
A: Not when the luxury tax is separately stated and paid by the purchaser — it's a federal excise tax on the consumer, excluded from the receipt under § 526.5(b)(2).

Q: How is it handled on a car lease?
A: It depends on the lessor's option. If the lessor prepaid the luxury tax when buying the car, it can't exclude that cost from the lease charge; if it remits the luxury tax with each payment, it can separately state and exclude it.

Q: When is sales tax due on a car lease in New York?
A: Since June 1, 1990, § 1111 requires it at lease inception, on all receipts for the entire lease term.

Q: What if the luxury tax isn't separately stated?
A: Then it isn't shown as an excluded consumer excise tax and can end up inside the taxable receipt.

Citations and references

Statutes, regulations, and authorities:

• 20 NYCRR § 526.5(a) (definition of "receipt")
• 20 NYCRR § 526.5(b)(2) (excise taxes imposed on the consumer, including the federal retail excise taxes under 26 U.S.C. ch. 31, are excluded from the receipts on which sales tax is computed)
• Tax Law § 1111 (special rules for computing receipts; sales tax on certain motor-vehicle/vessel/aircraft leases due at lease inception, effective June 1, 1990)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_61s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (61)S
Sales Tax
September 23, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910611A

On June 11, 1991 a Petition for Advisory Opinion was received from Robert Stillman,
C.P.A., 60 East 42nd Street, Suite 850, New York, New York 10165.
The issues raised by Petitioner, Robert Stillman, C.P.A., are whether sales tax is imposed
upon the Federal Retail Excise Taxes on Certain Luxury Items included in Chapter 31 of Title 26
of the U.S. Code ("federal luxury tax") and whether sales tax is required to be collected upon the
entire lease payment when such lease payment includes the federal luxury tax.
Petitioner submitted the following examples in connection with a car that sells for
$40,000.00:

Ex. 1 - The outright purchase of a car for $40,000.00 with the federal luxury tax stated
separately.
Ex. 2 - A 3 year lease of a car that sells for $40,000.00 where there is no downpayment and
the monthly payments include all taxes.
Ex. 3 - A 3 year lease of a car that sells for $40,000.00 where the sales tax and federal luxury
tax are paid at the inception of the lease and the payments are based only on the cost
and residual value.
Section 526.5(a) of the Sales and Use Tax Regulations defines receipt as follows:
(a) Definition. The word receipt means the amount of the sale price of any
property and the charge for any service taxable under articles 28 and 29 of the Tax
Law, valued in money, whether received in money or otherwise. The following
subdivisions of this section discuss elements of a receipt.
Section 526.5(b)(2) of the Sales and Use Tax Regulations provides in part that:
". . .excise taxes which are imposed on the consumer are excluded from the
receipts on which sales tax is computed. Among these taxes. . .are: (i) the federal
retail excise taxes imposed pursuant to chapter 31 of title 26 of the U.S. Code. . . ."
Section 1111 of the Tax Law contains special rules for computing receipts and consideration.
This section was amended effective June 1, 1990 so that sales tax is payable at the inception of the

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TSB-A-91 (61)S
Sales Tax
September 23, 1991

lease rather than on each payment in connection with the lease of certain motor vehicles, vessels and
noncommercial aircraft. The pertinent part of Section 1111 states that:
". . .all receipts due or consideration given or contracted to be given for such
property under and for the entire period of the lease, option or similar provision, or
combination of them, shall be deemed to have been paid or given and shall be subject
to tax, and any such tax due shall be collected, as of the date of first payment under
the lease. . ."
Therefore in accordance with the provisions of Sections 526.5(a) and 526.5(b)(2) of the Sales
and Use Tax Regulations the federal luxury tax is not part of the receipt subject to sales tax on the
purchase or lease of a car where the federal luxury tax is separately stated and paid by the purchaser.
It is noted that the federal luxury tax with respect to leased vehicles may or may not be
factored into the amount subject to sales tax depending on the payment option (of luxury tax) elected
by the lessor. The lessor who elects to pay the luxury tax at the time the vehicle is purchased may
not exclude that tax expense from the lease charge to its customer when computing the sales tax on
the customer's lease payment. The lessor who elects to remit the luxury tax in conjunction with the
receipt of each lease payment may separately state the luxury tax component of the lease payment
to the lessee and compute the sales tax in the same manner as it is computed on an outright sale.

DATED: September 23, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.