New York Advisory Opinion TSB-A-95(37)S: When a captive auto-leasing company buys already-executed vehicle leases from unaffiliated dealerships (via automatic assignment after approval), is the leasing company responsible for collecting the sales tax on those leases?

Plain-English summary

General Electric Capital Auto Lease, Inc. ("GECAL") purchases motor vehicle leases originating at various dealerships throughout New York State -- none of which are affiliated with GECAL. Under this arrangement, all lease negotiations between prospective customers and the dealer happen entirely at the dealership; the lease documents are initiated and signed there too, with the dealership itself signing as the initial lessor, and any required initial cash outlays (including sales tax) are collected there as well. Only after the completed lease is submitted to and approved by GECAL's regional office does the lease automatically assign to GECAL, which then purchases the vehicle from the dealership. The lease agreement's own terms make clear that the dealer's signature both accepts the lease and simultaneously assigns all rights, title, and interest in the vehicle and lease -- including all amounts due under it -- to GECAL.

The Department ruled GECAL is not responsible for collecting the sales tax on these leases. Tax Law § 1111(i) provides that sales tax on a motor-vehicle lease of one year or more (for a vehicle with a gross weight of 10,000 pounds or less) is due up front, at the inception of the lease, computed on the full stream of consideration for the entire lease term. Under 20 NYCRR § 532.1(a)(1), the person required to collect that tax is whoever is "collecting the price" from the customer -- here, that's the dealership, which is the actual seller making the taxable transaction under 20 NYCRR § 526.7(a)(2) (leases count as a "sale" for this purpose). Because the dealership consummates the lease and is the one required to collect the tax at that moment, the SUBSEQUENT assignment of the already-executed lease to GECAL doesn't shift that collection responsibility to GECAL -- GECAL is simply acquiring a lease (and the underlying tax obligation, if any, already fixed at inception) that the dealer already had a duty to properly tax. That said, the Department noted GECAL WOULD be responsible for collecting sales tax due on any later lease extensions or on the exercise of a lease purchase option, since those transactions occur after GECAL has become the lessor of record. This opinion is limited to leases taxable under § 1111(i); for short-term leases (under a year) or vehicles that don't meet that section's weight/definition requirements, GECAL would instead be responsible for collecting tax on each individual rental payment.

What this means for you

Captive/affiliated auto leasing companies buying dealer-originated leases

If your leases are fully negotiated, signed, and initially taxed at independent dealerships before being assigned to you, you're generally NOT responsible for collecting the original sales tax on those leases -- that duty falls on the dealer as the original lessor and seller. Your collection responsibility kicks in only for events happening after the assignment, like lease extensions or purchase-option exercises.

Auto dealerships originating leases for assignment to a leasing company

Even though your paperwork or a leasing company's branding may make the arrangement feel like you're just a conduit, YOU are the party legally responsible for collecting and properly remitting the upfront sales tax on the lease at the moment it's signed -- assigning the lease afterward doesn't transfer that already-fixed tax obligation to the assignee.

Anyone structuring a lease-origination-and-assignment business model

Whether tax-collection responsibility follows the ORIGINAL transaction (falling on whoever actually sells/leases to the customer) or SUBSEQUENT events (falling on whoever is the lessor of record at that later point) depends on timing -- track precisely when each taxable event (inception, extension, purchase option) occurs relative to any assignment.

Common questions

Q: Does it matter that the dealership isn't affiliated with GECAL?
A: The ruling doesn't turn on affiliation status -- what matters is which party actually negotiates, executes, and collects consideration for the lease at inception. An unaffiliated dealer originating and signing the lease is the one responsible for collecting tax, regardless of any later corporate relationship with the assignee.

Q: What if the dealer fails to properly collect the tax at signing?
A: The ruling doesn't address enforcement against a dealer who fails to collect -- it simply establishes that the LEGAL collection responsibility under the regulations belongs to the dealer at inception, not that GECAL inherits liability for the dealer's noncompliance by taking an assignment afterward.

Q: Does this same rule apply to short-term or heavier vehicle leases?
A: No -- the ruling explicitly limits its answer to leases taxable under § 1111(i) (generally a term of a year or more, vehicle 10,000 lbs. gross weight or less). For shorter leases or vehicles outside that definition, GECAL would instead be responsible for collecting tax on each individual rental payment.

Citations and references

Statutes and regulations:

• Tax Law § 1111(i) (special rule for motor vehicle leases of one year or more)
• 20 NYCRR 526.7(a)(2) (leases included in sale/purchase definition)
• 20 NYCRR 527.15(c)(1)(i) (lease tax due at inception)
• 20 NYCRR 532.1(a)(1) (vendor must collect tax when collecting the price)

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_37s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (37)S
Sales Tax
September 15, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S950321A

On March 21, 1995, a Petition for Advisory Opinion was received from General Electric
Capital Auto Lease, Inc., 600 Hart Road, Barrington, Illinois 60010.
The issue raised by Petitioner, General Electric Capital Auto Lease, Inc., is whether it is
responsible for collecting sales tax on leases of vehicles, where it purchases the leases from the
dealerships.
Petitioner's leases originate at various dealerships located throughout New York State. None
of the dealerships are affiliated with Petitioner. All negotiations between prospective lessees and
dealer take place at the dealership. All lease documents are initiated and executed at the dealership
(dealership signing as the initial lessor), and any required initial cash outlays are tendered there as
well, taxes included. Completed lease documents are submitted to Petitioner's regional office for
approval and once approved the lease is automatically assigned to Petitioner, and the vehicle is then
purchased by Petitioner from the dealership.
The pertinent section of the lease agreement follows:
The authorized signature of the lessor below has the effect of:
1.

Accepting the terms and conditions of this Lease Agreement, and

2.

Assigning to General Electric Capital Auto Lease, Inc. (GECAL) all right,
title and interest in and to the Vehicle and this Lease Agreement, including
all amounts to become due under it, subject to the provisions of that certain
Lease Plan Agreement between the lessor and GECAL.

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 provisions, or combination of term, 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 provisions, or

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TSB-A-95 (37)S
Sales Tax
September 15, 1995
combination of them, or as of the date of registration of such property with the
commissioner of motor vehicle, whichever is earlier.
Section 526.7(a)(2) of the Sales and Use Tax Regulations provide that, "[A]mong the
transactions included in the word sale, selling or purchase are exchanges, barters, rentals, leases or
licenses to use or consume tangible personal property".
Section 532.1(a)(1) of the Sales and Use Tax Regulations further provides that "[E]very
person required to collect the tax shall collect the tax from the customer when collecting the price,
amusement charge, or rent to which it applies".
Section 527.15(c)(1)(i) of the Sales and Use Tax Regulation provides in part:
With respect to the lease of a motor vehicle, vessel or noncommercial air-craft for a
period of one year or more, all receipts due or consideration given or contracted to
be given for such property under, and for the entire period of, the lease, renewal
option or combination of them, (except as provided in paragraph [2] of this
subdivision) are deemed to have been paid or given and are subject to tax, and any
tax shall be collected, at the inception of the lease. Renewal options are included in
the computation of tax, whether or not they are exercised or are for a period of one
year or more, individually or cumulatively. (For any lease entered into prior to June
1, 1992, where a lease itself was for a period of one year or more, any option to
renew a lease or similar contractual provision was required to have been for a period
of one year or more before it was subject to the provisions of section 1111 [i] of the
Tax Law).
In the instant case the lessor of the motor vehicles, the motor vehicle dealership, is the person
making a sale of tangible personal property which is subject to sales tax and is required to collect
such tax at the time the lease is consummated. The subsequent assignment of the lease by the
dealership to Petitioner does not make the Petitioner liable for the collection of sales tax from the
lessee in accordance with sections 526.7(a)(2) and 532.1(a)(1) of the Sales and Use Tax Regulations.
It is noted that the Petitioner would be responsible for collecting any sales tax that is due on
any extensions of the lease and on lease purchase options.

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TSB-A-95 (37)S
Sales Tax
September 15, 1995
It is further noted that this opinion only applies to leases taxable under Section 1111(i) of the
Tax Law. In the case of short term leases of less than one year or leases of motor vehicles which are
not defined in Section 125 of the Vehicle and Traffic law or which have a gross weight in excess of
10,000 pounds, Petitioner would be responsible to collect sales tax on each rental payment.

DATED: September 15, 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.