# How to Calculate Your Lease Car Tax

October 16, 2013

Calculating lease car tax is essential when considering a car lease, as most advertised lease specials do not include tax in the lease payments. Before contacting a dealership, you consider the true value of a car lease by adding sales tax to an advertised lease payment. There are two primary methods used to calculate tax on a car lease. In most states, tax on a lease payment plan is based on taxing each monthly payment. In a handful of states, lessees are responsible for paying sales tax on the full selling price of the vehicle, not just the monthly payments. This results in more sales tax being paid, as sales tax based on the monthly payment means you must only pay tax on the leased vehicle's depreciation, not the full selling price. This guide highlights both ways to calculate lease car tax when using a car lease purchase calculator.

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#### Step 1: Find the Base Monthly Payment

The base monthly payment is defined as your monthly payment, inclusive of monthly depreciation and finance charges, but not including taxes or any local registration fees. Taxes are commonly excluded so that a manufacturer can offer a cheaper lease in advertising, and so ads do not need adjustment to account for differing local tax rates. A dealership, like those you can contact via CarsDirect, can give you the base monthly payment for a lease.

#### Step 2: Add Sales Tax to Payment

Multiply the base monthly payment by your local tax rate. For example, if a lease on a Mercedes-Benz E-Class has a monthly price of \$699 before tax, and your sales tax rate is 6%, the monthly lease tax is \$41.94 in addition to the \$699 base payment. This makes the total lease payment \$740.94.

#### Step 3: Calculate Tax Over Lease Term

To determine how much sales tax you will pay over the entire term of the lease, simply take the tax amount found in Step 2 and multiply it by the length of the lease. For example, if the E-Class lease noted above was for 39 months, your total sales tax over the term would be \$1,635.66.

In some states, lease car tax is based on the full selling price of the vehicle. For example, if the Mercedes-Benz E-Class from the example above had an MSRP of \$55,100 and a final selling price of \$53,000, the full \$53,000 would be taxed, regardless of the term of the lease. Assuming that the sales tax rate is 6%, \$3,180 in sales tax would be due on the lease. It could be paid in one lump sum, or in installments along with the monthly payments, in which case the tax would cost \$81.54 per month on a 39 month lease. If your state calculates lease tax in this manner, you may be able to purchase a vehicle rather than lease and have a similar payment, as the tax breaks associated with leasing are not available.