Title 26 — Internal Revenue CodeRelease 119-73
§4217 Leases
Title 26 › Subtitle Subtitle D— Miscellaneous Excise Taxes › Chapter 32— MANUFACTURERS EXCISE TAXES › Subchapter F— Special Provisions Applicable to Manufacturers Tax › § 4217
Summary
When a manufacturer, producer, or importer leases out a product instead of selling it, the lease counts as a sale for federal excise tax purposes. If the tax is based on sale price, the lessor pays tax on each lease payment at the rate in effect on the payment date, until the payments add up to the "total tax" — the tax that would have been due on a regular sale of the item when it was first leased. This pay-as-you-go rule applies only if the lessor also sells the same type and model of item in normal arm's-length sales. If the item is sold before the total tax is fully paid, tax is due on the smaller of the remaining balance or the tax on the sale price; once the total tax has been paid, a later sale is tax-free. Leased automobiles subject to the gas guzzler tax follow a special rule: only the first lease by the manufacturer counts as a sale, and the gas guzzler tax is spread across the lease payments in proportion to each payment. If the lease ends early or the car is sold before the full tax is paid, the manufacturer pays the rest at that point.
Full Legal Text
Title 26, §4217
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this chapter, the lease of an article (including any renewal or any extension of a lease or any subsequent lease of such article) by the manufacturer, producer, or importer shall be considered a sale of such article.
(b)In the case of any lease described in subsection (a) of an article taxable under this chapter, if the tax under this chapter is based on the price for which such articles are sold, there shall be paid on each lease payment with respect to such article a percentage of such payment equal to the rate of tax in effect on the date of such payment, until the total of the tax payments under such lease and any prior lease to which this subsection applies equals the total tax.
(c)For purposes of this section, the term “total tax” means—
(1)except as provided in paragraph (2), the tax computed on the constructive sale price for such article which would be determined under section 4216(b) if such article were sold at retail on the date of the first lease to which subsection (b) applies; or
(2)if the first lease to which subsection (b) applies is not the first lease of the article, the tax computed on the fair market value of such article on the date of the first lease to which subsection (b) applies.
(d)(1)Subsection (b) shall not apply to any lease of an article unless at the time of making the lease, or any prior lease of such article to which subsection (b) applies, the person making the lease or prior lease was also engaged in the business of selling in arm’s length transactions the same type and model of article.
(2)If the taxpayer sells an article before the total tax has become payable, then the tax payable on such sale shall be whichever of the following is the smaller:
(A)the difference between (i) the tax imposed on lease payments under leases of such article to which subsection (b) applies, and (ii) the total tax, or
(B)a tax computed, at the rate in effect on the date of the sale, on the price for which the article is sold.
(3)If the taxpayer sells an article after the total tax has become payable, no tax shall be imposed under this chapter on such sale.
(e)(1)In the case of the lease of an automobile the sale of which by the manufacturer would be taxable under section 4064, the foregoing provisions of this section shall not apply, but, for purposes of this chapter—
(A)the first lease of such automobile by the manufacturer shall be considered to be a sale, and
(B)any lease of such automobile by the manufacturer after the first lease of such automobile shall not be considered to be a sale.
(2)In the case of a lease described in paragraph (1)(A)—
(A)there shall be paid by the manufacturer on each lease payment that portion of the total gas guzzler tax which bears the same ratio to such total gas guzzler tax as such payment bears to the total amount to be paid under such lease,
(B)if such lease is canceled, or the automobile is sold or otherwise disposed of, before the total gas guzzler tax is payable, there shall be paid by the manufacturer on such cancellation, sale, or disposition the difference between the tax imposed under subparagraph (A) on the lease payments and the total gas guzzler tax, and
(C)if the automobile is sold or otherwise disposed of after the total gas guzzler tax is payable, no tax shall be imposed under section 4064 on such sale or disposition.
(3)For purposes of this subsection—
(A)The term “manufacturer” includes a producer or importer.
(B)The term “total gas guzzler tax” means the tax imposed by section 4064, computed at the rate in effect on the date of the first lease.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
1978—Subsec. (e). Pub. L. 95–618 added subsec. (e). 1976—Subsec. (d)(4). Pub. L. 94–455 struck out par. (4) relating to special transitional rules applicable to leases. 1958—Pub. L. 85–859 substituted “Leases” for “Lease considered as sale” in section catchline. Subsec. (a). Pub. L. 85–859 redesignated existing provisions as subsec. (a) and struck out provisions which made subsection inapplicable to the lease of an article upon which the tax has been paid in the manner provided in section 4216(d)(1) or the total tax has been paid in the manner provided in section 4216(d)(2) of this title. Subsecs. (b) to (d). Pub. L. 85–859 added subsecs. (b) to (d). 1955—Act Aug. 9, 1955, exempted lease of an article upon which tax has been paid under section 4216(d)(1) or section 4216(d)(2) of this title.
Statutory Notes and Related Subsidiaries
Effective Date
of 1978 AmendmentAmendment by Pub. L. 95–618 applicable with respect to 1980 and later model year automobiles, see section 201(g) of Pub. L. 95–618, set out as an
Effective Date
note under section 4064 of this title.
Effective Date
of 1976 AmendmentAmendment by Pub. L. 94–455 effective on first day of first month which begins more than 90 days after Oct. 4, 1976, see section 1904(d) of Pub. L. 94–455, set out as a note under section 4041 of this title.
Effective Date
of 1958 AmendmentAmendment by Pub. L. 85–859 effective on first day of first calendar quarter which begins more than 60 days after Sept. 2, 1958, see section 1(c) of Pub. L. 85–859, Sept. 2, 1958, 72 Stat. 1275.
Effective Date
of 1955 Amendment Section effective on first day of first month which begins more than ten days after Aug. 9, 1955, see section 4 of act Aug. 9, 1955, set out as a note under section 4216 of this title. Application of Leases of Utility Trailers Pub. L. 85–859, title I, § 117(c), Sept. 2, 1958, 72 Stat. 1281, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The
Amendments
made by subsections (a) and (b) [amending this section and section 4216 of this title] shall not apply to any lease of an article if section 4216(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954, prior subsec. (d) of section 4216 of this title] applied to any lease of such article before the
Effective Date
specified in section 1(c) of this Act.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 4217
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73