95ireland

I am in the process of trying to purchase an Audi from an individual in Washington DC. He leased the car from Audi Finance and we are being told by Audi Finance that regardless of whether he does the early buyout of the lease from Audi or whether I pay it off directly to Audi, that we will be liable for state taxes in both DC and North Carolina (where I reside). Paying the Sales tax in DC is another $2500 - $3000. Logically I would have thought if I buyout the lease from Audi and the car is never titled to the individual in DC, then he/we shouldn't have to pay DC sales tax also.
I know in CA that if you buyout your lease and sell the car within 10 days the seller is not liable for state taxes, just the person to whom the car is sold. I've searched and searched and have not been able to find specific direction regarding the rules in DC. I fully expect to pay NC taxes on the purchase but it seems unreasonable to pay DC sales tax also. Insight from anyone that has had a similar experience or can provide definitive guidance on the state sales tax regulations governing this situation, would be very helpful.

plat27265

The way I see it, the person leasing the car from Audi Finance is a resident of DC. Regardless of whether you pay the lease off on behalf of the original Owner, Audi Finance will still see it as the Lessee (the person selling the car) paying off the lease and not you (the buyer from NC) since you are not named the lessee in the contract. So, Audi Finance will charge DC sales tax on the early buyout even though you're from NC.

I suggest inquiring with Audi Finance and finding out what will happen to the lease buyout sales tax when you transfer the lease under your name (instead of the original lessee buying out the car to sell it to you) and then buy it out yourself.

MikeS6

Audi paid the sales tax on that car to the state (in this case D.C.) when they bought it from the dealership to lease to the owner. More than likely Audi wants you to pay that cost that would have been paid back to them through Lease payments, etc. And of course yes, you'd owe the state of NC the sales tax on the purchase. I actually wonder if that technically legal for them to charge the state tax back to you. I bet it isn't. But in any event they are like any other business,and are trying to get you to pay additional costs, etc.

NOLAessate

Back in 2013, my daughter was interested in buying my A4 Avant at my lease end, so I inquired on her behalf. I was told that the only person who can buy at lease end is the person named on the lease. If I wanted to add her or another family member to the lease (so that someone other then me could make the purchase), AFS would re-run the credit check to include them and I'd have pay the legal costs associated with re-writing/amending the lease and refiling with the state in which the car was registered (it was about $500, if I recall). She opted for another vehicle so I never went further. Hope this helps.

In essence it's similar to selling to one person who does't register the car and then sells to another - down here it's called a double transfer - and sales tax is due on each transaction.

95ireland

I think you are likely correct in your assessment of the situation. If Audi Finance did indeed pay the entire DC Sales tax on the car upfront and then charged the lease holder on a monthly basis to recoup the state taxes then I see no way around paying Audi back for the remaining state taxes they have not recouped. The lease holder is being reasonable and will payout all the DC state taxes if he is required, but it reduces any room he had for negotiation. We are also trying to figure out if Audi Finance or the lease holder could subsequently receive a tax credit for the taxes paid over and above the months the car was leased in the District of Columbia. We want to do this right and ensure no one over pays taxes, doesn't get a credit they are entitled to or most of all have Audi Finance charge more than they should to let the lease holder out of the lease and sell the car to me. I will of course pay all applicable NC sales taxes and registration charges.

uberwgn

I've encountered the same. They said if the car were turned over to someone else it made them a "used car dealer", which they are not licensed for.


I would have had to title/register the car in my name, pay all taxes and fees and then sell the car to the 3rd party.

superswiss

The tax rules on a lease are different from state to state. Most states charge sales tax on the monthly lease amount and the buyout, but in states like Texas I believe is one, where the entire tax amount is due upfront, the lessee has to pay it as part of the drive off cost. The leasing companies do not upfront the tax and then charge it back to the lessee on a monthly basis.

As mentioned, some states like CA have a double transfer exemption, however, as far as I know, the exemption only applies if you buy/sell within the state. CA wants their sales tax, either way.

Even if DC had a double transfer exemption, the driving factor here is the fact that the car is being sold out of state. I don't believe there is a way around this if you try to handle the transaction yourself. This is why there are lease swap companies to avoid all this, however, if I were the current lessee I would stay away from those, because Audi Finance is one of the leasing companies that doesn't release the original lessee from any liability.

One way to get around this tax mess is to involve a dealer as the middleman. The lessee can sell/trade the car to a dealer, they will handle the buyout w/o having to pay taxes and cut the lessee a check. Then the dealer sells the car to you as an out of state transaction. That will also give you the opportunity to have the car CPO'd for a fee of course and extend the warranty. The lessee may not get as much money this way as the dealer will want to make a profit, but it might still be a better deal than having to pay taxes.

95ireland

So a dealer doesn't have to pay sales tax when they buyout a lease from Audi Finance, but an individual does? Why is this?
This approach might work if we can find a dealer that will facilitate the transaction for a reasonable doc fee and not try to make a killing off our double taxation misfortune.

superswiss

Because a dealer doesn't buy the car for personal use, they buy it for resale. They pay taxes on the profit they make. That's their business. Neither you nor the lessee are a car dealer business, so you are buying the car for personal use.

95ireland

Thanks Superswiss, you've been very helpful. We are going to try the dealer route and see if we can accomplish our goal.