§4217 Leases

Summary

Leasing an item by the maker, producer, or importer counts the same as selling it for tax purposes. When the tax is based on sale price, the maker must pay part of that tax with each lease payment. Each payment is taxed at the rate in effect on the payment date. Payments keep being taxed until the total tax owed for the item is reached. “Total tax” means the tax figured on the constructive sale price at the rate in effect on the date of the first lease that starts this rule, unless that first lease is not the item’s first lease — then total tax is based on the item’s fair market value on that date. The rule only applies if the lessor also sells that same model in normal sales. If the item is sold before the total tax is fully paid, the tax on the sale is the smaller of the remaining tax under the lease rule or the tax on the sale price at the rate on the sale date. If the item is sold after total tax is paid, no tax applies on the sale. For cars subject to the gas guzzler tax, the manufacturer’s first lease is treated as a sale and later leases are not. For those cars, the manufacturer pays a share of the total gas guzzler tax with each lease payment in proportion to that payment, pays any remaining tax if the lease ends early, and owes no tax on a later sale if the total gas guzzler tax already was paid.