Sure, no problem.
State law governs taxes on leasing. Illinois is one of the most regressive. You’ll probably have to call a local dealer to find out how NYC works. I’ll give you a few examples.
In Illinois, the lessee (that’s you) pays the sales tax on the full selling price of the car. If you agree to pay $22,000 for the car, in Illinois you will pay $1705.00 in sales tax (7.75%) title in Illinois is maybe $50.00 and plates are $75.00, so total would be $1830, which is about your worst case scenario.
Other states just tax the payment. If you payment is $300/month and sales tax on cars is 8%, the payment bumps to $324 per month. Or, say it’s a 36 month lease and you want to pre-pay the tax, the tax would be $864. Notice this is much lower than $1705.
Some states tax the depreciation. Say you agree to a selling price of $22,000. Assume a residual (what’s left of the value of the vehicle) of 48% after 36 months. This means the leasing company is going to charge you $11,440 for the use of the car for 36 months (plus tax, title, lic, interest and “rent”). 8% sales tax of $11,400 is $912.
Notice in the above example, you pay $11,400 plus interest plus rent. Assuming 0.0% interest and no rent (what the heck) your payment will be $11,400/36 months = $316.67 per month. How in the world, then can one lease a $22,000 car for less than $300/month?
The leasing company and/or the manufacturer help you out. They may increase the residual beyond expected market value. They may give you some capital cost reduction (a lease rebate). They may may have a very low or 0 % interest rate. Or (sneaky) they may require YOU to come up with some extra cash at the time of lease inception. Most luxury car leases that end in $X99/month do this.
Usually you will see a combination of a discounted selling price for the vehicle, inflated residual and low interest rate to get to a promotional lease rate. If the vehicle you’re considering offers only “standard” rates and residuals, run, don’t walk. The lease payment is not subsidised and you will pay full price.
Our first example had a $22,000 selling price, a 48% residual, 0.0% APR and 36 months which came to $316.67/month.
Example #2. The dealer agrees to discount the vehicle to $21,000. The finance arm bumps the residual to 53% and further agrees to the 53% residual out to 39 months. New payment = ($21,000) - ($22,000 *53%) / 39 months = $239.49/month.
2002/2003 example. Yes, at first it seems Very counterintuitive. It is very expensive to lease “last years model.”
Leasing is based on residuals. A residual is a best guess of what the vehicle will be worth at the end of the lease term. Say you have a 2003 new domestic sedan with a sticker price of $22,000 and the finance co thinks it will be worth $10,500 after three years and 36,000 miles. The residual % in this case is 48%. If they change their guess to $9,000, the residual % drops to 41%.
In the first case, the depreciation is $11,500 but in the second case it is $13,000. In a lease, you want to be charged the least depreciation possible for the lowest possible payment.
Now let’s look at 2002 vs 2003. Say the 2002 has a sticker price of $22,000 and in these deflationary times, the sticker price of the 2003 is $22,250. Lets say three years from now, the residual % of the 2003 is 48%. However, three years from now, the 2002 is a four year old car. The first year’s depreciation is already on the clock for the 2002 and someone has to pay for it and that would be you. Let’s say the residual % of the 2002 three years from now is 36 %. Assume the dealer sells you the 2002 for $2,000 less than the 2003 but will go no longer than 36 months vs 39 months on the 2003.
Plug and chug, 2002 = $307.83/month
2003 = $271.03/month
You might want to send me an email or call me. It gets confusing sometimes.