When an independent auto dealer is the actual lessor on a vehicle lease and accepts a trade-in, but then immediately sells (assigns) the lease and vehicle to a finance company, can the trade-in still be excluded from the taxable lease receipts?

Subject

Chase Manhattan Automotive Finance Corporation

What this means for you

An auto-finance company (a bank subsidiary) works with dealers under non-exclusive agreements: dealers are not the finance company's agents, and they typically also work with other lenders. When a customer wants a lease under the finance company's program, the dealer runs a credit application, negotiates and accepts any trade-in vehicle (intending to resell it), and executes the lease as the actual lessor. Only after the lease is fully documented and the vehicle delivered does the finance company purchase the lease and the vehicle from the dealer.

The question was whether the trade-in's value could still be excluded from the taxable lease receipts, given that the finance company (not the original dealer-lessor) ends up owning the lease. The Department confirmed it can. What matters under New York's trade-in rule is who is the lessor accepting the trade-in at the time of the lease, and whether that party intends to resell it -- not who eventually ends up holding the lease afterward. Here, the dealer is genuinely the lessor (not the finance company's agent), genuinely negotiates and accepts the trade-in for resale, and only sells the lease/vehicle to the finance company afterward as a separate, subsequent transaction. That satisfies the trade-in exclusion, so the taxable lease receipts exclude the trade-in's value.

As with other motor-vehicle leases, sales tax on the full (net of trade-in) lease receipts is still due up front, as of the earlier of the first lease payment or the vehicle's DMV registration.

Q&A

Q: Our dealership signs leases as the lessor, accepts trade-ins, and then sells the lease/vehicle to a finance company right after -- does the trade-in still reduce the taxable amount?
A: Yes, as long as the dealer is genuinely the lessor (not merely executing paperwork as someone else's agent) and accepts the trade-in itself with intent to resell it. The finance company's later purchase of the lease and vehicle is treated as a separate transaction that doesn't undo the trade-in exclusion already established at lease signing.

Q: Does it matter that the dealer isn't an agent of the finance company?
A: Yes -- it confirms the dealer is acting in its own right as lessor (and trade-in recipient), which is exactly the scenario where the trade-in exclusion applies cleanly, unlike situations (see the companion opinion on NY State Automobile Dealers, Inc.) where a dealer's authority is limited to executing paperwork as someone else's agent.

Q: When is sales tax actually due on this kind of lease?
A: As of the earlier of the date of the first payment under the lease or the date the vehicle is registered with the Department of Motor Vehicles -- the full lease-term tax is collected up front, not spread across the lease payments.

Citations

• Tax Law § 1101(b)(3) -- defines "receipts" subject to tax, excluding trade-in credit for property accepted in part payment and intended for resale.
• Tax Law § 1111(i) -- requires sales tax on the entire motor-vehicle lease term up front, due at the earlier of first payment or vehicle registration.
• 20 NYCRR 526.5(f) -- excludes a trade-in's value from taxable receipts when accepted in part payment with intent to resell.
• 20 NYCRR 527.15(c)(5) -- a lessor accepting a trade-in for resale excludes its value from total lease receipts.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a95_20s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (20)S
Sales Tax
June 12, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S941227C

On December 27, 1994, a Petition for Advisory Opinion was received from Chase Manhattan
Automotive Finance Corporation, 900 Stewart Avenue, Garden City, New York 11530
The issue raised by Petitioner, Chase Manhattan Automotive Finance Corporation, is whether
an automobile dealer, as lessor, that enters into a lease of an automobile with a customer, as lessee,
may exclude the value of any trade-in vehicle transferred to such automobile dealer in calculating
the receipts subject to sales tax.
Petitioner, a wholly-owned subsidiary of The Chase Manhattan Bank, National Association,
with its principal place of business in New York, engages in automobile leasing on an indirect basis
through automobile dealerships located in New York State.
Petitioner enters into non-exclusive dealer agreements with automobile dealers located in
New York enabling dealers to offer Petitioner lease programs to their customers. Dealers are not
agents of Petitioner and most dealers enter into agreements with several financial institutions and
leasing companies to provide their customers with the best competitive lease terms for their
automobiles. If a customer wants to enter into a lease under a Petitioner lease program, the dealer
has the customer complete a credit application to Petitioner for credit approval. If the customer is
approved, the dealer negotiates the value of a customer's trade-in vehicle, if any, accepts such trade­
in, if any, in part payment of the lease and completes and executes a lease agreement with the
customer.
The dealer is the lessor under the lease. The dealer-lessor then delivers the vehicle to the
customer-lessee. Any trade-in vehicle received by the dealer is accepted by such dealer with the
intent for resale. Upon completion of the lease documentation and delivery of the vehicle to the
lessee, the dealer submits the required lease documentation to Petitioner. Immediately upon receipt
of all properly completed documentation as required by Petitioner, Petitioner purchases the lease and
the vehicle from the dealer-lessor. If the dealer does not submit properly completed documentation,
Petitioner will not purchase the lease.
Section 1101(b)(3) of the Tax Law defines receipts as "[t]he amount of the sale price of any
property and the charge for any service taxable under this article, valued in money, whether received
in money or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser . . . but excluding any credit for tangible personal property accepted in part payment and
intended for resale . . . ."

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TSB-A-95 (20)S
Sales Tax
June 12, 1995

Section 1111(i) of the Tax Law provides, in part, as follows:
(i)
Notwithstanding any contrary provisions of this article or other law, with
respect to any lease for a term of one year or more of (1) a motor vehicle, as defined
in section one hundred twenty-five of the vehicle and traffic law, with a gross vehicle
weight of ten thousand pounds or less, . . . or an option to renew such a lease or a
similar contractual provision, 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 the first payment under the lease, option, or similar provision, or combination
of them, or as of the date of registration of such property with the commissioner of
motor vehicles, whichever is earlier.
Section 526.5(f) of the Sales and Use Tax Regulations provides, in part, as follows:
(f)
Trade-in. Any allowance or credit for any tangible personal property
accepted in part payment by a vendor on the purchase of tangible personal property
or services and intended for resale by such vendor shall be excluded when arriving
at the receipt subject to tax. Only the net sale price of tangible personal property or
the charge for services would be subject to tax.
Example 1: A motor vehicle dealer allows a customer
$850.00 for a used automobile, accepted in part payment against the
sale price of $3200.00 for a new automobile. The used automobile
is for resale. The customer is billed as follows:
New automobile . . . . . . . . $3200.00
Trade-in . . . . . . . . . . . . . . . 850.00
Due. . . . . . . . . . . . . $2350.00
Receipt subject to tax is $2350.00.
Section 527.15(c)(5) of the Sales and Use Tax Regulations provides that "[W]here the lessor
accepts tangible personal property for resale as a trade-in on a lease agreement, the total receipts do
not include the value of the trade-in."
In the instant case, dealers who are not acting as agent for Petitioner, enter into lease
agreements with customers for the lease of motor vehicles. Such agreements state that the dealer is
the lessor and the customer is the lessee. In addition, the dealer negotiates and accepts in part
payment a customer trade-in with the intent of reselling such trade-in. Upon completion of the lease
documentation and delivery of the vehicle to the lessee, Petitioner purchases the lease and vehicle
from the dealer-lessor. Accordingly, since the dealer, upon execution of the automobile lease,
accepts a trade-in with the intent for resale pursuant to Section 1101(b)(3) of the Tax Law and

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TSB-A-95 (20)S
Sales Tax
June 12, 1995

sections 526.5(f) and 527.15(c)(5) of the Sales and Use Tax Regulations the value of such trade-in
may be excluded when arriving at the receipt subject to tax.
It is noted that pursuant to Section 1111(i) of the Tax Law, dealers must collect sales tax as
of the date of first payment under the lease, option or similar provision, or combination of them, or
as of the date of registration of such vehicle with the commissioner of motor vehicles, whichever is
earlier.

DATED: June 12, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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