Sales Tax on Down Payment

In leasing you are not paying the tax on the value of the car as you are not buying it. However, the sales tax is charged on the monthly lease payments. Sales tax vary from state to state. In Ohio, sales tax is charged upfront while in some states sales tax is charged on the price of the car even if it is leased. Since the down payment reduces the monthly lease payment, the amount of sales tax would also be reduced as the tax is charged monthly.

Here is an example of how sales tax is charged on the monthly lease payment. Suppose you are required to pay $400 per month as the lease payment. If the state charges 7% sales tax then the amount of tax will be $28 and your monthly lease payment will be $428.

Tax on the lease payments reduces the upfront cost to get into a vehicle as compared to buying. Since the taxes are included in the payment, you are not paying the taxes for the value of the car but you pay the sales tax on the finance charges.