Updated Sales Tax Benefits for Leasing

Eyo Toe | March 3, 2023

2023 Pay As You Go States Map

Lease Here Pay Here (LHPH) dealers are a unique type of dealership that offers customers with poor credit or no credit the opportunity to lease a vehicle and make weekly, bi-weekly, or monthly payments. This type of business model has become increasingly popular in recent years with used car prices increasing, and it also comes with a unique set of tax benefits, especially when it comes to sales tax. LHPH dealers have the opportunity to pay sales tax on a pay-as-you-go basis rather than upfront paying sales tax on the entire lease sum.

Pay-as-you-go sales tax is a system that allows businesses to pay sales tax to the state as they collect lease payments from their customers. This means that LHPH dealers only pay sales tax on the portion of the lease payment that represents the actual lease of the vehicle, not the portion that represents interest or fees.

The amount of sales tax paid on each lease payment is calculated based on the tax rate in the state where the vehicle is leased. This rate can vary depending on the state and even the county or city where the vehicle is leased, so it's important for dealers to be familiar with the tax laws in their area.

In summary, pay as you go LHPH dealers can use the sales tax system to pay sales tax on a "pay as you go" premise as opposed to upfront. Dealers who want to control their cash flow and stay away from significant up-front tax payments may find this to be a useful choice. To be in compliance with state tax laws, dealers must grasp the requirements of pay as you go sales tax and maintain accurate records.

Not in a pay-as-you-go state? Not to worry. Non pay-as-you go states follow the same sales tax laws as BHPH. As you may notice on the map above, some NON pay-as-you-go states also have sales tax advantages that are not considered pay-as-you-go. The two states we are aware of right now are Texas and Ohio. Stay tuned for more details on sales tax benefits that are not considered pay-as-you-go later this month!