How do I Figure Taxes on a Lease Car Deal in New Jersey?

Taxes on a lease car deal can be difficult to understand, as the total of the taxes paid is not representative of the selling price of the vehicle. New Jersey, along with 40 other states, charges sales tax based on the total depreciation of the vehicle plus other taxable charges. Depreciation is equal to the selling price of the vehicle less the residual value, which is a projected value the leasing company assumes the car to be worth at the end of the lease term.

Instructions

1

Determine the depreciation on the vehicle you are considering. Subtract the residual value of the vehicle from the pre-tax selling price provided by the dealership. For example, if you negotiate a price of $21,500 on a Toyota Camry with a residual value of $11,500, the total depreciation is $10,000. Remember that you can negotiate the selling price on a lease just as you would on a purchase. The total depreciation is the base amount on which your seven percent New Jersey sales tax is based.

2

Subtract the trade-in from the depreciation calculated in Step 1. If you trade a vehicle in on a lease, you do not need to pay tax on the value of the trade-in. For example, if you trade a 2002 Toyota Echo with a trade-in value of $3,500, the taxable depreciation is reduced from $10,000 to $6,500.

3

Add the taxable values associated with any rebates or down payments applied to your lease. For example, if the total taxable amount of the transaction carried forward from Step 2 is $6,500 after trading a 2002 Echo, but a $1,000 rebate and $1,000 down payment were used to lower the selling price of the car and, in turn, the monthly payment, tax must be paid on the rebate and the down payment. Therefore, $2,000 must be added to the taxable amount of $6,500, giving a taxable total of $8,500.

4

Add other taxable purchases to the total. Taxable aftermarket additions include service contracts, maintenance plans, prepaid maintenance and alterations to the vehicle. Note that credit life/accident and health (CL/AH) insurance is not taxable, nor are registration and title fees charged during the transaction. For this example, assume that a $500 prepaid maintenance plan was purchased, increasing the taxable amount to $9,000.

5

Calculate sales tax. Using the seven percent New Jersey sales tax, tax in the amount of $630 is due on the transaction after all credits and additions to the taxable total. Taxes are charged in even installments just like your monthly payment. For example, on a 39 month lease, the monthly tax would be $16.15 in addition to the base monthly payment.