What's happening
This bill updates tax rules for motor vehicle leases, specifying how lessors must pay or collect sales tax on leased vehicles used mainly for business.
Why it matters
Specifies how lessors of business-use leased vehicles must handle sales tax. The bill requires lessors to either pay tax upfront on the vehicle’s purchase price or collect and remit sales tax on all lease payments for the first 32 months (or the initial lease term, if longer), providing clarity and standardization for tax compliance.
Targets leases where vehicles are primarily used for business. The provisions apply only if the lessee certifies that more than 50% of the vehicle’s use is for business, ensuring that the rule is focused on commercial, not personal, leases—potentially affecting business tax planning and leasing strategies.
Clarifies tax treatment for lease renewals. For renewals or extensions beyond the initial 32-month period (or longer initial term), the bill mandates that tax must be collected and paid on those additional payments, closing potential loopholes and ensuring ongoing tax compliance throughout the life of the lease.
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Who cares
Headline styles
Adjust Car Lease Tax Rules
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to rules
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
9065
IN SENATE
October 23, 2020
Introduced by Sen. KENNEDY -- read twice and ordered printed, and when printed to be committed to the Committee on Rules
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) (1) 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, the lessor shall: (i) pay tax on the receipts from the sale of or consideration given or contracted to be given for the purchase, as measured by subdivision (b) of section eleven hundred ten of this part, of such vehicle for lease; or (ii) collect and pay tax as measured by 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] (2) If a lessor collects and pays tax as measured under clause (ii) of subparagraph one of this paragraph, 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 subdivision.
§ 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD17514-01-0
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, motor vehicle leasing companies have the flexibility to pay sales taxes on its purchases of fleet vehicles either up-front on the receipts of the sale at the time it purchases motor vehicles for lease to New York businesses or up-front on the lease consideration that the lessors receive from the lease of these vehicles for the first 32 months of the lease term and subsequently on each renewal option thereafter.
Read the full memo (885 words)
Section 2 of the bill establishes the effective date.
Justification
Commercial motor vehicle lessors own and manage millions of vehicles which are leased to corporations, small businesses, nonprofit organiza- tions and government entities in all 50 states. These vehicles range from passenger cars to cargo vans and trucks that are customized and outfitted to fit business purposes, from electrical and plumbing repair and telecommunications installation, to wholesale food and beverage distribution and fuel delivery. These vehicles are on the road every day and are part of the essential infrastructure of New York State's econo- my.
Commercial motor vehicle leases, which are also known as "TRAC leases", feature a minimum term of approximately one year and monthly renewals thereafter until the customer returns the vehicle. The actual value of the vehicle at the end of the lease term is then determined, usually by sale at wholesale auction. Each lease agreement features a Terminal Rental Adjustment Clause (TRAC) that provides for a payment adjustment upon lease termination. If the actual value of the vehicle upon lease termination is less than the value estimated in the lease agreement, then the total lease computation may result in the customer having to pay an additional lease payment. Conversely, if the value of the vehicle upon lease termination is greater than the estimated value, then the customer receives a refund of overpaid lease consideration throughout the lease term.
Lessors of motor vehicles subject to TRAC leases struggle with how to correctly collect, remit and report New York state and local sales taxes on these unique transactions. Unlike consumer leases with individual consumers, TRAC leases are not for a fixed term and the amount of rent varies based on a variety of factors. Many TRAC lease payments contain a variable interest rate component whereby the rent is allowed to change as an underlying index interest rate fluctuates due to changing economic conditions. The vehicle is sold at the end of the lease and, pursuant to the TRAC clause in the lease agreement, additional rent is paid by or rent previously paid is refunded to the lessee. Existing law is unclear as to how these factors increase or decrease the taxable lease consider- ation.
Providing commercial fleet lessors the option pay tax on its purchases of its motor vehicles for lease would simplify tax compliance since tax could be paid instead on the purchase price paid by the lessor to the seller as reflected on a bill of sale. This is the same manner by which sales and use tax is computed on any other motor vehicle purchased by an individual or business.
Allowing commercial fleet lessors to pay sales and use tax on its purchases of motor vehicles for lease would further accelerate tax revenues. If the up front tax election is made by the lessor, tax would apply to the total vehicle purchase price paid by the lessor rather than only the lease consideration paid by the lessee for the use and possession of that vehicle. Moreover, tax paid on the lessor's purchase would be paid immediately to the seller at the time of sale (or, if the seller is not in New York State, to the Department of Motor Vehicles at the time of titling and registration) rather than over the lease term.
Under current law, sales tax is paid up-front on the lease consideration received from the lease of these vehicles for the first 32 months of the lease term and subsequently on each renewal option thereafter. If this legislation is enacted, this same treatment will continue, except that commercial fleet lessors will have the additional option of paying all of the sales and use tax due on its purchase up-front. This will accel- erate the tax paid to New York State and the tax will be paid on a high- er tax base (subject to any reduction to the taxable sales price such as rebates, incentives and trade-ins).
Legislative history
None.
Fiscal implications
Enactment of this legislation would provide a new sales tax payment option for fleet vehicle leasing companies that would accelerate payments by paying upfront on the vehicle purchase price and it would also enable NYS to receive additional revenues. The amount of additional revenues would depend on how many companies opted in to this new option. Based on recent fleet vehicle industry figures, the estimated range of additional annual revenue would be $600,000 to $1.6 million paid to NYS.
Effective date
Immediately.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.