Sales Tax on Lease Buy-out - HELP!!

[kpond]

Gents,

I'm hoping someone out there can help me. Approx 24 months ago I arranged to sell my leased Type R to a fellow NSX'r. The sale price was approx the same as the lease pay-off. I delivered the car to the buyer, took his check and paid off the car from Honda Finance Corp (lease holder). No problem. New owner subsequently registered the car and was of course required to pay sales tax on the purchase price.

Now, 24 months later, I receive a letter from the California State Board of Equalization stating that I owe the sales tax on this purchase + 24 months of interest.

I suppose their point is that the title of the car actually passed from Honda Finance to me then to the buyer. However, my point is that I never *really* bought the car... and what is the fairness of both of us having to pay sales tax on the same transaction. That's crazy.

In lieu of sending the money (nearly 2K) I allegedly owe, I have the chance to send an explanation of how they have made a mistake. Anyone with actual experience in doing this? What is my best angle? I really don't want to pay the 2K.

Thanks for the help!

[This message has been edited by kpond (edited 13 July 2002).]

 

[JohnC]

No experience w/ it, but I bet your shafted. You probably could have gone through a dealer and made it work, and I hope you find a provision that lets an individual manage the same transaction. Sadly tax laws and common sense don't always agree. Best of luck!

------------------
01' NSX-T Silverstone
02' Chevy Avalanche 1500
00' Suzuki Hayabusa GSX1300
02' Honda VTX-1800
02' Aprilia Falco SL1000

 

[ALLAN]

coming from the auto industry, i can tell you that if you can prove that the car was immediately sold to a new registered owner at the time of the lease buyout you will not have to pay tax, atleast in the state of florida you wouldnt. make sure you include any and all documentation showing dates,etc in your explanation letter.

 

[Tom Larkins]

What ever happens, keep us posted. I bought one of my leased cars for my wife early in the term. Of course I had to pay sales tax, but I did keep it. I'm no expert on this stuff but my guess would be that your gonna have to pay since the title would be made to you in the first place from American Honda. I believe as a lease the financial co. pays tax at the start of the lease which can/or cannot be figured into the monthly lease payment over the term if desired by the person doing the lease. If you look at the advertisements, the small print @ the bottom of the ad always says something like, tags, taxes not included in payment, because the dealer in short is selling the car back to Am. Honda and your paying the amount of depreciation on the car only. Then you bought it from Am. Honda, even though you turned it over to another person. Of course the personal property tax is payed by you or it is in MO anyway. Unfortunately i think you may be screwed which is something that the gvmnt is good at ! . I hope Allen is right and i'm wrong. Good luck...

 

[ALLAN]

i just wanted to clarify something, when you bought the lease out, did you put the title in your name or did it go directly into the buyers name? if you put it into your name and then sold it, then you WILL have to pay sales tax. hopefully you had the buyers directly purchase the car.

 

[kpond]

Allan,

I delivered the car to the buyer and turned over the car to him in trade for a cashier's check. I then sent the pay-off data and the buyers name and infor to American Honda and either by design or fault, everything (title, etc) came back to me which I promptly sent to the buyer. I imagine the laws vary state to state. I was told recently (but not yet confirmed) that in CA, there is a 10-day period that you have to "turn" the car. I'm still investigating and mostly HOPING!

 

[Nsxotic]

The problem here is that you can not sell something that isn't yours. You've never paid tax on it. As Allan, I am also a finance director in the auto business. You can not sell a leased car to someone else without first owning it unless you arranged this with American Honda. So, Honda is assuming that YOU bought the lease from them and then sold it to your friend. (which is what you were supposed to do.. and then account for that in your selling price.)
As Allan said, you can try to show how it was immediately sold and registered and hope this works. Remember, it's the state that cares about sales tax when registering a vehicle, not the finance companies.

 

[WeakestLink]

I've ended a lot of leases early by selling to third parties so I have an opinion to share. (disclaimer: it may be wrong) Anyway, as stated before, it does depend by state but I think your best defense will rest on how the title was transferred.

Some leasing companies will let the lessee "sell" the leased car to a third party on behalf of the lessor. Basically, the leasing company who owns the car will sell the car directly to the 3rd party; the original lessee never shows up as an owner of the vehicle. Unfortunately, Acura is not one of those companies. (you can view each leasing companies' policies at swapalease.com) Anyway, some leasing companies claim that they are not allowed to sell to third parties in certain states and some just decide not to do so to keep their transactions simple. However, sometimes, these leasing companies make mistakes or an employee doesn't pay close attention and lets things slip by.

Specifically, if Acura sent you a title and did not put your name in the New Buyer's field on the title (which happens often), then you can argue you never owned the car and thus could not sell what you don't own. (and not pay tax) If they put your name in the New Owner's field, then you probably did transfer title twice, from Acura to you, then you to the new owner. If you have a copy of the original Bill of Sale to the new owner, that can also prove how the transaction took place.

For future reference, one way I learned to get around this situation is to first transfer the lease to the new purchaser's name (most companies except for Porsche allow you transfer a lease). Then have them buy the car from the leasing company. Most states won't charge double sales tax if the user already paid tax at lease inception. (MD just changed their laws to reflect this) Other states don't charge if a lessee purchases their leased car within 1 year of leasing (and sales tax has been paid).

After having gone through a lot of back and forths with DMVs in MD, DC and VA, I've learned to ask 3 employees at the respective DMV the same question and hope you get the same answer. If not, write down the names, dates and times of your conversation in case such a situation comes up. (a few months ago, a friend of mine ran into a similar situation taking over a lease from BMW). When, the MVA (MD's DMV) came asking for the sales tax (it was a lease transfer from MD to MD, no ownership change), he pulled out his file, quoted the manager who told him he didn't have to pay and the issue was over.

Good luck.

 

[kpond]

Hey everyone, thanks for all of the reponses. I think I am HOME FREE!!!

My source (found by my wife):
California State Board of Equalization Sales and Use Taxes: Exemptions and Exclusions.
California Revenue and Taxation Code Part 1, Division 2. Publication No. 61 . LDA, Page 15:

"VEHICLES SOLD TO LESSEE - Normally the sale of a vehicle by a lessor to a lessee is subject to tax. However, it is rebuttably presumed that if the lessee transfers the vehicle to a third party within ten days from the date the lessee acquired title from the leasor at the lease termination, the sale by the lessor is a nontaxable sale for resale, and no tax would be due for the interim ten day period."

Whew, what a relief. Thanks again everyone for the advice. If you'd like to see the document on-line, it is at the following URL: http://www.boe.ca.gov/pdf/pub61.pdf

 

[Michigan NSX]

I hope you will spend some of the $2k you saved on YOUR WIFE!

------------------
'91 Black/Black

 

[Tom Larkins]

I thank you guys as well. If it isn't maybe this should be in the FAQ section. Its good info for those whom have to lease.