In states that levy a personal property tax, you may be paying a percentage of your car's market value to the public treasury. There's not much wiggle room on vehicles, since the state already has the registration information, including the year, make and model of your car. If you're leasing, however, you're not the legal owner and may not be liable. It all depends on the lease agreement that the dealer offers.
When you lease a car, the dealer still maintains ownership. They pay the personal property taxes on the vehicle unless otherwise stated in your lease contract.
Personal Property Taxes
Some states levy "ad valorem" taxes based on the value of property you own. This could include a car, which in most households is a relatively valuable property. If personal property taxes are in effect, you must file a return and declare all nonexempt property as well as its value. The tax is levied as a flat percentage of the value, and it varies by county. For example, in Alexandria, Virginia, a "car tax" runs $5 per $100 of assessed value while in Fairfax County the assessment is $4.57 per $100.
Ownership and Tax Statements
A dealership that leases a vehicle retains ownership. The terms of the lease will decide the responsible party for personal property taxes. In all cases, the tax assessor will bill the dealership for the taxes, and the dealership will pay. If the lease states that you are responsible for these taxes, you will then receive a bill from the dealership.
This may be a one-time annual payment, or it may be rolled into the monthly payments you make for the lease. If you need to register the car, you may need a statement or receipt from the dealership that the personal property taxes have been paid.
Understanding Duplicate Payments
If you must declare personal property for tax purposes, never include any vehicles (or other property) that you lease. The tax authorities will always bill the party that retains ownership of the vehicle. If you declare and pay on your own, you will still receive a bill from the dealership; you will have to pay that and then demand a refund from the state -- which could take quite a bit of time, effort and paperwork.
Exploring Tax Deductions
If you pay personal property tax on a leased vehicle, you can deduct that expense on your federal tax return. The Internal Revenue Service requires that these deductible "ad valorem" taxes be based on the value of the car, and be charged by the state every year. You need to itemize deductions on the Schedule A in order to take this write-off; you can't take the standard deduction as well as the personal property tax deduction. The IRS also allows the deduction of registration fees that are based on the car's value.
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- The Difference Between Tangible Taxes Vs. Property Taxes
- Taxes When Buying a New Car
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- Can I Deduct Vehicle Registration Fees on a Federal Tax Return?
- Can You Do an Itemized Deduction of Sales Tax or Property Tax?
- Can I Claim Property Tax on My Federal Return?
- What Is the Difference Between Real Estate Taxes & Personal Property Taxes?