New York Codes, Rules and Regulations
Title 20 - DEPARTMENT OF TAXATION AND FINANCE
Chapter IV - Sales And Use And Other Miscellaneous Taxes
Subchapter A - Sales And Use Taxes
Part 527 - Taxable Transactions
Section 527.15 - Certain leases of motor vehicles, vessels and noncommercial aircraft
Current through Register Vol. 46, No. 12, March 20, 2024
Tax Law, §§ 1105(a), 1110, 1111(i), 1118, 1132, 1139
(a) Section 1111(i) of the Tax Law provides special rules for the payment of sales and use tax on certain leases of motor vehicles, vessels and noncommercial aircraft. Rather than the tax being due upon each periodic lease payment, the Tax Law provides that with respect to the leases described in this section the tax is due at the inception of the lease on the total amount of the lease payments for the entire term of the lease.
(b) For purposes of the tax imposed on leases of motor vehicles, vessels and noncommercial aircraft described in this section, the following definitions shall apply.
Example:
A resident of Schenectady County, New York leases a small noncommercial aircraft for three months and hangars the aircraft at Albany County Airport. The lease agreement provides the lessee with five options to renew the lease for three-month terms each. The three-month lease together with the five options to renew the lease constitute a lease for a term of one year or more.
(c) Special rules for computing tax.
Example 1:
The leasing division of a New York State motor vehicle dealer offers a customer (who is a resident of a seven percent taxing jurisdiction) a two-year motor vehicle lease agreement with an option to renew the lease for an additional two years. The agreement requires the lessee to make monthly payments of $350. In order to exercise the renewal option, the lessee must pay a one time fee of $500. The amount of sales tax the lessor is required to collect from the lessee at the inception of the lease is computed as follows:
| Monthly lease payment | $ 350 |
| Original no. of months in lease | 24 |
| Plus - no. of months of renewal | +24 |
| Total term of lease | × 48 |
| Subtotal | $16,800 |
| Plus - cost of renewal option | +$ 500 |
| Receipts subject to tax | $17,300 |
| Applicable tax rate | × 7% |
| New York State and local sales and use tax due | $ 1,211 |
Example 2:
A resident of Schenectady County, New York leases a vessel for six months and moors the vessel at the Schenectady County Marina. The lease agreement provides the lessee with five options to renew the lease for three-month terms each. Such a lease agreement is subject to sales tax for the entire term of the lease (including the five options) at the inception of the lease.
Example 3:
A motor vehicle fleet lease agreement provides that the lessee must lease such vehicles for at least one year whereafter the lessee has an indeterminate number of options to extend the lease on a monthly basis. Unlike most renewal options which would keep a lease in effect for another specific long term, the indeterminate number of options allows for a variable lease term dictated solely at the discretion of the lessee. If the lessee certifies to the lessor that such lessee intends that more than 50 percent of the use of such motor vehicles is to be in a trade or business of the lessee as described in clause (2)(i)(c) of this subdivision, such lease is subject to sales tax at the inception of the lease based upon all receipts due or consideration given or contracted to be given for the first 32 months of the lease term. The tax due with respect to any monthly extension thereafter must be collected and paid on each lease payment when such payment is due (see section 526.7[c] of this Title; Rentals, leases, licenses to use).
The compensating use tax is due based upon the difference between the State and local tax rates paid at the point of delivery of the vessel and the State and local tax rates in effect where the vessel is primarily used or moored. If the jurisdiction in which the vessel is subsequently moored or used imposes a lower tax rate than that in effect at the point of delivery, no credit or refund is allowed for the difference in tax rates.
Example 4:
Assume a lease of a motor vehicle with a term of 48 months and an option to renew the lease for 12 more months is entered into. In order to reduce the amount of the monthly payments the lessee makes a substantial down payment. The total of the monthly payments for the entire term of the lease, including the option period, plus any charges for the option to renew the lease, plus the amount of the down payment made by the lessee are receipts for purposes of determining the tax due at the inception of the lease.
Example 5:
Assume a lease of a motor vehicle with a term of 36 months is entered into. The lessee does not put any money down. The lessor and lessee agree that the lessor will pay out of its own funds the tax due on the lease payments and the lease payments will be increased over the term of the lease to cover the amount of tax. The receipts subject to tax at the inception of the lease are the total of the monthly payments for the entire term of the lease, including the additional amounts included in the lease payments to repay the lessor for the tax paid.
(d)
(For special rules for determining the rate of tax applicable to the lease of a motor vehicle, vessel or noncommercial aircraft for a period of one year or more see subdivision [c] of this section. For rules of lessor as vendor, see paragraph [3] of this subdivision and section 526.10[a][7] of this Title, definition of vendor.)
Example 1:
Mr. W, a New York State resident, enters into a 48-month lease of a motor vehicle with an out-of-state lessor for use of the vehicle outside New York State. If the vehicle is subsequently used in New York, such use will be subject to the New York State and local compensating use tax. The amount of tax due is to be determined as if the original lease had been entered into in New York State, except that the receipts subject to tax will be the total of any remaining receipts due or consideration to be given under the lease after the lessee first used the motor vehicle in New York State.
Example 2:
Mr. B, an Ohio resident, enters into a 60-month lease of a motor vehicle with an Ohio lessor on June 1, 1990, with payments of $200 due on the first of each month. On November 15, 1990, Mr. B moves to Troy, New York, bringing the vehicle with him. For sales and use tax purposes, Mr. B becomes a resident of Rensselaer County and New York State on November 15, 1990, and the New York tax applies to his leased vehicle once the vehicle enters the State. The tax due on the remaining lease payments is computed as follows:
| No. of whole months remaining on | 54 |
| lease agreement not yet paid for | |
| Monthly lease payment | $200 |
| Total of remaining receipts due | $10,800.00 |
| × tax rate (Rensselaer Co.) | .07 |
| New York State and local use tax | 756.00 |
| due |
Example 3:
Mr. C, an Ohio resident, enters into a 48-month lease of a motor vehicle with an Ohio lessor on September 20, 1990, with payments due on the 20th of each month for the entire lease term. On December 20, 1990, Mr. C pays the current month's payment plus six months in advance through June 20, 1991. On March 10, 1991 Mr. C moves to and becomes a resident of Troy, New York, bringing the leased vehicle with him. For sales and use tax purposes Mr. C becomes a resident of New York State and Rensselaer County on March 10, 1991. Mr. C becomes liable for the New York State and local compensating use tax as of the date he becomes a resident and brings the vehicle into the State. Since Mr. C has made lease payments through June 20, 1991, the use tax due is computed based on the remaining receipts due pursuant to the lease agreement, from July 20, 1991 to the end of the lease term, even though use of the property in this State began March 10, 1991 and became subject to tax on such date.
(e) Limitations on refunds and credits.
No refund or credit shall be allowed based upon the fact that receipts are not actually paid as in the case of early termination of a lease, failure to exercise an option to renew a lease or bad debt (see section 534.7 of this Title) since, under section 1111(i), such receipts are deemed to have been paid. For additional information on refunds see Part 534 of this Title and sections 198-a and 198-b of the General Business Law.
(f) Reciprocity.
Example:
A New York resident of a seven percent taxing jurisdiction (four percent State and three percent local tax) leases a motor vehicle for a three-year period from an out-of-state lessor for use out-of-state. The tax law in the lessor's state considers such leases to be retail sales and requires the lessor to collect sales tax at the inception of the lease on the total amount payable for the entire term of the lease. The rate of tax in the lessor's state is five percent and the total amount payable under the lease agreement is $16,200 ($450 monthly payment × 36 months = $16,200). After one year, the lessee brings the vehicle into New York State for use in the state for the remaining two years of the lease agreement. The remaining lease payments (24 months × $450 = $10,800) are taxable under section 1111(i) of the Tax Law.
However, if New York State has reciprocity with the other state, since the lessee has already paid a five percent sales tax to the out-of-state lessor, the lessee will only be required to remit tax based on the difference in tax rates (two percent) and only on any remaining receipts due or consideration to be given beginning with the day the vehicle is first used in New York State. ($450 monthly payment × 24 months = $10,800 × 2% = $216 tax due)
(g) Miscellaneous.
Any receipts due or consideration given or contracted to be given under an option to renew a lease of a motor vehicle described in this section or a similar contractual provision or combination of them, exercised as part of any such lease between the same lessor and lessee with respect to the same motor vehicle or vehicles, where such lease or any option to renew such lease or any other similar contractual provision is subject to tax in accordance with this section and section 1111(i) of the Tax Law shall not be subject to the Special Tax on Passenger Car Rentals imposed pursuant to the provisions of article 28-A of the Tax Law.
