How is the selling price determined for a leased vehicle?

Public Act 98-628 amends the definition of “selling price” in Section 1 of the Retailers' Occupation Tax Act and Section 2 of the Use Tax Act to provide for an alternate method of determining the selling price subject to sales and use taxes for certain motor vehicles sold for the purposes of being leased.

The selling price for leased motor vehicles is determined in one of two ways:

  • the actual selling price
  • the amount due at lease signing plus the total amount of payments over the term of the lease

The alternate selling price (i.e., the amount due at lease signing, plus the total amount of payments over the term of the lease) must be used when a qualifying motor vehicle is sold for the purpose of being leased under a fixed-term lease contract for a period of more than one year. Qualifying motor vehicles are

  • first division motor vehicles and
  • second division motor vehicles that are
    • self-contained motor vehicles designed or permanently converted to provide living quarters for recreational, camping, or travel use, with direct walk-through access to the living quarters from the driver's seat;
    • motor vehicles of a van configuration designed to transport not less than 7 and not more than 16 passengers; or
    • motor vehicles having a gross vehicle weight rating (GVWR) of 8,000 pounds or less.

You must use this alternate selling price on motor vehicles that qualify, and the following conditions will apply when you use the alternate selling price:

  • Trade-in credit is not allowed to reduce the selling price.
  • Credit for tax paid on a previously leased motor vehicle cannot be used against the tax liability when it is sold at the end of the lease.
  • Additional charges at the end of the lease (e.g., additional charges for excess wear or mileage or for retaining possession of the motor vehicle beyond the term of the lease) must be reported by the leasing company on a new form using the same taxable location and rate as the original return that reported the transaction.

Note: The above provisions regarding the alternate selling price apply only to sales and purchases for lease occurring on or after January 1, 2015.

See Informational Bulletin FY 2015-03 and the instructions for Form ST-556-LSE and Form RUT-25-LSE for more information.

If you have additional inquiries, you may submit them to the Questions, Comments, or Request form.