The New York State Department of Taxation and Finance has issued an Advisory Opinion finding that sales tax collected at the outset of a car lease on the total lease payments will not be refunded if the leased vehicle moves out of the state. Advisory Opinion, TSB-A-15(50)S (N.Y.S. Dep’t of Taxation & Fin., Dec. 11, 2015).
[S]ales tax collected at the outset of a car lease on the total lease payments will not be refunded if the leased vehicle moves out of the state.
The Petitioner, while a New York resident, leased a new car in May 2011 and paid New York State and local sales tax on the total amount of the lease stream payments for the car. In February 2012, he moved to Florida. He registered the car with the Florida Department of Motor Vehicles, and since May 2012 was charged Florida sales tax on each monthly lease payment.
The Department’s analysis starts with recognition that New York law requires sales tax on leases of cars to be paid at the inception of the lease, on the total amount of the lease payments for the entire term of the lease, rather than requiring the tax to be paid with each periodic lease payment. Tax Law § 1111(i). The Department also notes that the tax is legally imposed on the lessee, while the lessor is required to collect the tax and pay it over to the Department. Tax Law §§ 1131 and 1132.
The Department then went on to find that no New York statute or regulation allows a refund even if the remaining lease payments are not made, citing three decisions from the Tax Appeals Tribunal: Matter of Moerdler, DTA No. 816969 (N.Y.S. Tax App. Trib., Apr. 26, 2001); Matter of Torquato, DTA No. 816973 (N.Y.S. Tax App. Trib., Oct. 12, 2000); and Matter of Miehle, DTA No. 816201 (N.YS. Tax App. Trib., Aug. 24, 2000).
The Department also went on to find that, although the tax is legally imposed on the Petitioner as the lessee, because the dealer is responsible for collecting and remitting the tax, New York tax secrecy provisions prevent the Department from disclosing the dealer’s sales tax information, including whether the tax on the customer’s vehicle was remitted to the Department.
While this Advisory Opinion appears to leave the lessee with a double tax burden – paying tax on 100% of the lease payments to New York at the outset of the lease and then paying tax to Florida each month on the same lease payments for the remaining length of the lease – there is no doubt that it is consistent with decisions from the Tax Appeals Tribunal. These cases included circumstances where not only was the car moved out of state (Matter of Torquato), but also where the vehicle was stolen (Matter of Moerdler) or so badly damaged to be a total loss (Matter of Miehle).
In Matter of Miehle, the Tribunal reviewed Tax Law § 1139 and found no provision for a refund of any portion of the sales tax properly paid at the inception of the lease. The Tribunal noted that the Legislature was not unaware of the statute’s failure to provide for a refund, and that bills that would have allowed refunds or credits in the case of early termination or non-renewal of a motor vehicle lease, or allowed a refund if the vehicle was destroyed, had been introduced but never enacted. The legislature did allow, in Tax Law § 1139(f), for a refund of sales tax paid at the inception of a lease when the car was found to be a “lemon” under General Business Law §§ 198-a and 396-p(5), which the Tribunal determined provided further support for the Department’s position that no refund was allowed in other circumstances.
Absent some future modification of the statute, claims for refund of tax paid at the inception of leases are unlikely to succeed.