For sales tax purposes, you should be taxed on the cap reduction since it is part of the selling price of the vehicle. In California, you pay sales tax on the portion of the car that that you're paying for. At the start of the lease, you pay tax on all of the up-front cost which includes your down payment and the cap reduction. The monthly payment includes "use tax" which is another form of sales tax on the monthly payment. The portion you don't pay sales tax on is the residual value, because you didn't "use" that portion of the car. If you were to buy out the lease, you would then pay sales tax on the residual value.embeleco said:on my lease agreement the $7500 is listed under cap cost reduction along with my down payment and also included in the total of payments, so I feel like the DMV will try to tax me on that.
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