Mike_TX

Okay, so we all know about invoice and "real" invoice, and holdbacks and markups and all those "backroom" shenanigans that go on while you're sitting in the salesman's office waiting for the terms on you new car.

Or do we? Take, for example, sales tax.

I've gone through the last 40+ years of buying and leasing cars believing that the state charges sales tax on the difference between your trade-in value and the price of the new car. Right? No so fast, Lexus breath. If your trade is a leased vehicle, it turns out that you no longer get a "reduction" in the tax based on the value of your trade. The reason this has slipped past me is that the dealer paid the sales tax on last three cars I've leased ... via "tax credits".

These tax credits are apparently generated by the fact we no longer get that reduction in tax on our leased trade-ins. Instead, it goes into a pool and dealers buy these credits to use for negotiating power. Keep in mind that on a $70k car, the tax can be $4,500 or more.

If your dealer doesn't tell you otherwise, he has $4,500 or more up his sleeve that he can use to grease the skids and make a deal work. That's $4,500 he doesn't have to really "lose" on the deal, since it's a purchased tax credit.

So, know your stuff and ask for these credits. I just did that at a local dealer, and while LFS doesn't have any available for LS's, they admitted they have alternative financing sources that DO have them - and at no rate penalty. Another dealer didn't 'fess up to this.

Just goes to show there are always things the dealer knows that you may not.

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daryll40

Each state is different. What you posted is not true in Pennsylvania. If you trade in a car that you own and lease the new car, you get no sales tax credit. If the old (owned) car is worth $30,000 and the new (leased) car costs $60,000, you pay 10% tax on the payments each month on the new leased car. You do now (not in the past) get sales tax credit on any amount that you put down on the lease up to the value of the used car. So if you put down $35,000 (unlikely, but maybe on a "one pay" lease), you'd only pay sales tax on $5000. The more usual story is that the dealer buys your old car and you lease the new car for little or nothing down...thus losing the sales tax savings on your old car.

Yes, the whole car buying thing is a financial minefield. My personal experience has been that it's easier to navigate if you deal on a buy versus a lease. Leasing sometimes can be cheaper, esp if it's a depreciation hog (Lincoln Town Cars, for instance) in the long run, but it's hard to be sure upfront, esp if you have a trade.

Mike_TX

Good point, daryll - state sales tax rules and laws do very by state, and I should have noted that.

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jettie1767

In NJ, if you trade a car that you own, you can ask for the tax credit on the next leased or purchased vehicle.

Mike_TX

Interesting - it now looks like in Texas the only way to get any credit for the tax you've paid on your leased trade-in is to get a dealer to give you the tax credits on the new lease or purchase.

What puzzles me about this change is that tax has definitely been paid on the trade-in at time of original lease or purchase, and not getting an automatic offset for that on the new one really irks me. Especially since dealers or mfr's can be arbitrary about giving out the credits.

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