What's happening
This bill amends tax law to specify how terminal rental adjustment clauses in motor vehicle leases are taxed in New York.
Why it matters
Clarifies the tax treatment of terminal rental adjustment clauses (TRACs) in motor vehicle leases, specifying that any additional payment made by the lessee at the end of the lease (if the vehicle's value is lower than expected) will be subject to sales tax.
Allows lessors to exclude from taxable receipts any decrease in payment received at lease termination due to TRACs (i.e., if the vehicle’s value is higher than expected and the lessee pays less), potentially lowering the sales tax owed by the lessor.
Removes the possibility of earning interest on amounts excluded from taxable receipts due to a TRAC adjustment, meaning lessors cannot claim interest on these tax adjustments, which limits financial benefits from retroactive corrections.
Aligns New York state tax law with federal definitions and practices related to TRACs, providing clearer guidance and consistency for businesses and individuals engaging in commercial vehicle leasing.
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Who cares
Headline styles
Tax Rules for Lease Adjustments
Plain English, a few words. Used as the page title.
Sponsors
1 Co-sponsor
History
- Print number 3067a
- Amend and recommit to budget and revenue
- Referred to budget and revenue
- Reported and committed to finance
- Referred to budget and revenue
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Tax Rules for Car Leases
In Assembly Committee · Ways And Means · Sponsor Robin Schimminger
Full text
2 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
3067--A
2019-2020 Regular Sessions
IN SENATE
February 1, 2019
Introduced by Sens. BRESLIN, STAVISKY -- read twice and ordered printed, and when printed to be committed to the Committee on Budget and Revenue -- recommitted to the Committee on Budget and Revenue in accordance with Senate Rule 6, sec. 8 -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee
AN ACT to amend the tax law, in relation to terminal rental adjustment clauses in motor vehicle leases
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Paragraph (B) of subdivision (i) of section 1111 of the tax law, as amended by chapter 20 of the laws of 1992, is amended to read as follows:
(B) Notwithstanding any inconsistent provisions of this subdivision, with respect to a lease of a motor vehicle described in paragraph (A) of this subdivision for a term of one year or more (1) which includes an indeterminate number of options to renew or other similar contractual provisions or which includes thirty-six or more monthly options to renew beyond the initial term, and (2) under which lease the lessee of such motor vehicle has certified in the writing described in clause (i) of subparagraph (C) of paragraph two of subsection (h) of section 7701 of the internal revenue code of 1986, under penalty of perjury, that the lessee intends that more than fifty percent of the use of such vehicle is to be in a trade or business of the lessee, all receipts due or consideration given or contracted to be given under such lease for the first thirty-two months, or the period of the initial term if greater, of such lease shall be deemed to have been paid or given and shall be subject to tax in accordance with the provisions of this subdivision. For each such option to renew, or similar provision, or combination of them, exercised after the first thirty-two months, or the period of such initial term, if longer, of any such lease, tax due under this article shall be collected and paid or paid over without regard to this subdivi-
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD07642-02-0
S. 3067--A 2
sion. If any such lease contains a "terminal rental adjustment clause" as defined in paragraph three of subsection (h) of section 7701 of the internal revenue code of 1986, (1) any increase in the consideration given pursuant to such clause upon termination of the lease shall be subject to tax, and (2) any decrease in the consideration given pursuant to such clause upon termination of the lease shall allow the lessor to exclude such amount from taxable receipts. No interest shall be allowed or paid on the execution of amounts from taxable receipts under this subdivision.
§ 2. This act shall take effect immediately.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the tax law, in relation to terminal rental adjustment clauses in motor vehicle leases
Purpose of the bill
To clarify how sales taxes must be calculated and remitted under termi- nal rental adjustment lease agreements.
Summary of specific provisions
Section 1 of the bill would clarify the Tax Law to state that under vehicle leases containing a terminal rental adjustment clause, any increase in the consideration given upon termination of the lease shall be subject to tax and any decrease in the consideration upon termination of the lease shall allow the lessor to exclude such amount from taxable receipts provided that the lessor has repaid such tax to the lessee.
Read the full memo (784 words)
Section 2 of the bill establishes the effective date.
Justification
Fleet vehicle management companies typically lease fleets of motor vehi- cles to business clients under what are known as terminal rental adjust- ment clause (TRAC) lease agreements. Under these lease agreements, busi- ness customers lease vehicles with lease agreements containing no set end dates. Instead, under these agreements the vehicles are leased for an initial time period with an option to continue the lease on a month- to-month basis thereafter. In 1992, the NYS Legislature enacted a specific provision governing the sales tax treatment of TRAC leases. As a result of this legislation, lessors of vehicles subject to TRAC leases were required to collect and remit sales tax upfront at lease inception based on the total payments of the first 32 months and subsequently on each renewal option thereafter. However, the statute as currently writ- ten fails to address the sales tax treatment of the TRAC adjustment payment.
At the start of the lease, the leasing company determines the estimated resale (residual) value for the vehicle that can be reasonably expected when the lease is terminated and the vehicle is returned based on factors such as mileage allowances and the vehicle's intended purpose. This estimated resale value is used to help determine the lease payment amounts due from the customer. When a customer then returns a vehicle upon the termination of a lease, the condition of the vehicle is assessed and the actual resale value of the vehicle is determined by the amount actually received by the leasing company when it resells the vehicle to a third party after the lease is terminated. A TRAC provision in these lease agreements provides for an upward or downward adjustment of the total final lease amount to reflect any difference between the estimated resale value of the vehicle as originally projected at lease commencement and the actual resale value of a vehicle that is determined at lease termination.
For example, if the actual resale value of the vehicle upon lease termi- nation is less than the originally estimated resale value, then the total lease amount is increased and the lessee pays additional consider- ation to the lessor. In this case, the customer must also make an addi- tional sales tax payment to the state based on the additional consider- ation paid to the leasing company. Conversely, if the actual resale value of the vehicle upon lease termination is greater than the originally estimated resale value, then the total lease amount is decreased and the customer receives a refund of any overpayment from the leasing company. In this case, the customer should logically exclude the refunded amount from receipts subject to sales tax. However, when a customer receives consideration back from the leasing company because the vehicle is returned in better condition than initially projected, customers have been unable to receive consideration back from the state for the sales taxes that were collected and remitted on this overpay- ment.
The New York State Department of Taxation and Finance has taken the position that fleet vehicle management companies are not entitled to exclude any TRAC adjustment payments to the lessee from receipts subject to sales tax under state laws that broadly prohibit refunds of acceler- ated sales tax on vehicle lease payments. However, commercial TRAC leas- es are structured differently than other typical lease agreements in that the actual amount of total sales taxes due on the vehicle lease cannot be known until the end of the lease when the vehicle's resale value is determined when the vehicle is sold to a third party. The TRAC adjustment is then used to compute the total final lease payments and associated sales taxes due. The purpose of this legislation is to ensure that the actual sales taxes paid to the state are based on the actual total final value of the lease, which is dependent on the final TRAC adjustment.
Legislative history
None.
Fiscal implications
Unknown.
Effective date
Immediately.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.