rebate versus discount

[NurStrom]

For an e-Golf lease it's my understanding that VW dealerships use the $7,500 electric vehicle tax credit to discount the MSRP.
In other words, VW discounts the purchase price and they claim the credit.

Does that mean that the lessee would pay the sales tax on the discounted amount?
(I purchased my e-Golf)

Asking because one sale person I spoke told me that they called it a rebate which means that lessee would pay tax on MSRP and then get relief on the amount financed at the end.

Comments?

 

[miimura]

It depends on State law. In California, you pay sales tax on the selling price, as you pay for it. Let me clarify - at the top of the lease is the dealer selling price. That should be thousands less than the MSRP because there are factory to dealer incentives in play. Then they calculate the residual as a percentage of the selling price. That is the value of the car at the end of the lease. You don't pay for that portion of the car unless you buy it at the end of the lease, so you only pay sales tax on that portion when and if you buy it at the end. There are additional small service charges and fees, some are taxable and some are not. VW Credit chooses to pass through the tax credit as a capital reduction. You must pay sales tax on this amount. Any amount that you pay as a down payment or get credit for a trade-in will also have tax assessed because in effect, you're paying for part of the new car with that money.

The balance after adding all the fees and taxes and subtracting the residual, cap reduction, trade-in and down payment is the amount that is divided up into monthly payments. You also pay sales tax on the monthly payment. If your sales tax rate changes while you are making payments, your payment will change according to the new sales tax rate.

When we leased our 2015 e-Golf, we put down $2,500 (recouped via the State rebate) and got the $7,500 cap reduction. So, we paid sales tax of 8.75% on $10,000, which was $875.

 

[johnnylingo]

Does that mean that the lessee would pay the sales tax on the discounted amount?

Yes for California. I remember specifically when signing my lease that the bulk of the sales tax paid was for that $7500.

I did not have to pay any sales tax off the dealer's discount, which was around $5k.

Seemed silly because both were considered "cap reductions" in the paperwork, but that's how the law is written.

 

[RonDawg]

Does that mean that the lessee would pay the sales tax on the discounted amount?

Yes for California. I remember specifically when signing my lease that the bulk of the sales tax paid was for that $7500.

I did not have to pay any sales tax off the dealer's discount, which was around $5k.

Seemed silly because both were considered "cap reductions" in the paperwork, but that's how the law is written.

It all depends on how it's worded in that lease contract. As stated above, the amount that's written down in the box called "Capitalized Cost Reduction" is the basis for whatever tax and registration you would have to pay, along with the amount of your monthly lease payment, at least in California.

With my eGolf, the Capitalized Cost already reflected the significant manufacturer discount, thus I didn't have to pay sales tax on it, saving me hundreds of dollars. But in the case of my Leaf, the manufacturer incentive was included in the "Capitalized Cost Reduction" box that also included the Federal $7500 tax credit, so I did have to pay sales tax on that.

 

[miimura]

Whether purchase or lease, any manufacturer's rebate is after you pay the sales tax on the purchase price. The tax credit is usually passed through to you from leasing company like a rebate.

 

[NurStrom]

Whether purchase or lease, any manufacturer's rebate is after you pay the sales tax on the purchase price. The tax credit is usually passed through to you from leasing company like a rebate.

But a discount is before tax?

 

[miimura]

Whether purchase or lease, any manufacturer's rebate is after you pay the sales tax on the purchase price. The tax credit is usually passed through to you from leasing company like a rebate.

But a discount is before tax?

Yes, if you can get it written up as a dealer discount you don't pay sales tax on it.

 

[NurStrom]

Whether purchase or lease, any manufacturer's rebate is after you pay the sales tax on the purchase price. The tax credit is usually passed through to you from leasing company like a rebate.

But a discount is before tax?

Yes, if you can get it written up as a dealer discount you don't pay sales tax on it.

On the yellow sales contract line 1.A. (cash price) a discounted SE should read $24500 not $32K.