Motor vehicle leases are subject to the Minnesota general rate sales tax and any local sales taxes that apply. Sales tax is collected on the total up-front lease price and reported on your next Sales and Use Tax return.
Up-front leases include:
Sales tax is due up front for lease renewals. The up-front tax does not apply to rentals of vehicles for 28 days or less or to vehicles with a gross vehicle weight rate of over 10,000 pounds. The federal excise tax on certain heavy trucks is taxable to the lessor on the lease, even if separately stated on the customer’s invoice or contract.
For leases of 28 days or less, see Short-Term Rentals .
The total lease price is taxable. To determine the total lease price, subtract any rebates, residual, and trade-in allowance from the vehicle value and add in any taxable add-ons, interest, and finance charges, as shown below:
x 6.875% Minnesota general sales tax rate and any local sales taxes that apply
The vehicle value is the selling price of the vehicle. It is not necessarily the manufacturer’s suggested retail price. Cash down payments or capitalized cost reductions do not reduce the vehicle value.
Capitalized cost reduction is an amount or a combination of amounts that reduce a monthly payment. Examples include:
Any rebate, regardless of origin, is deducted from the vehicle value.
Residual value is what a leased vehicle is worth at the end of the lease term. The amount is documented in the lease.
If the customer buys the vehicle at the end of the lease for the residual amount, that amount is taxable. If the residual amount is adjusted, sales tax applies to any additional amount collected by the lessor. For example, if the residual amount is adjusted at the end of the lease due to excess mileage, the additional amount is taxable.
The trade-in allowance reduces the vehicle value when the lessor accepts a used vehicle as part of the lease transaction. The customer must own (not lease) the trade-in vehicle and must trade it in to the lessor named on the lease agreement.
If the customer owes money on the trade-in vehicle, the payoff amount to a lender does not reduce the trade-in allowance, even if the payoff amount is included in the new lease transaction.
The type of electric vehicle (EV) credit and when it is applied will determine how it applies to the sales price of a motor vehicle lease.
| What type of electric vehicle (EV) credit is being used? | When is the EV credit received? | How is the EV credit handled in the sales price of a motor vehicle lease? |
|---|---|---|
| Federal EV credit | The EV credit is passed on to the customer at the time the motor vehicle lease is initiated | The EV credit qualifies as a rebate that reduces the sales price |
| Federal EV credit | The EV credit is not passed on to the customer at the time the motor vehicle lease is initiated or creates another option that is not used when the lease is initiated | The EV credit does not reduce the sales price |
| Minnesota EV rebate | The EV rebate is used at the time the motor vehicle lease is initiated | The EV rebate reduces the sales price |
| Minnesota EV rebate | Later, after the customer completed the motor vehicle lease | The EV rebate does not reduce the sales price |
Interest or finance charges are the cost to carry the amount capitalized under the lease. The example below shows how to calculate tax on a lease.
x 6.875% Minnesota general sales tax rate
If the customer finances the up-front tax, do not include the associated finance charge in the taxable amount. Instead, spread the tax amount and finance charge over the term of the lease as in the example below:
Taxable amount $11,516.00
Term of lease ÷ 36 months
Base monthly payment $319.88
Capitalized tax amount (791.73 ÷ 36 months) + 21.99
Interest on capitalized tax +1.50
Total lease monthly payment $343.37
Sales tax is collected by the lessor named on the lease. Typically, the dealer is the lessor on the lease; the dealer may later assign the lease to a leasing company.
Lessors must report and pay the tax on their Sales and Use Tax returns. Do not pay the tax to a deputy registrar. If you have local tax to report, report it on the applicable local tax line.
Sales tax on excess mileage fees is collected by the lessor holding the lease contract at the end of the lease.
For vehicle leases or rentals, the source of the transaction for sales tax purposes depends on if the customer pays all at once or over time:
Note: These rules do not affect how sales tax applies to lump-sum or accelerated-basis leases, or to the acquisition of property for lease.
Do not charge sales tax on: