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Thanks to a new Illinois law that takes effect Jan. 1, 2015, state taxes on vehicle leases will be reduced by as much as 50 percent, allowing consumers to get more car for less money. House Bill 2317, signed by Gov. Quinn in May 2014, alters the way taxes are collected on light-vehicle leases. Prior to Jan. 1, a leasing customer paid tax on the entire purchase price of the vehicle. After Jan. 1, customers intending to lease a new vehicle will pay taxes only on money due at lease inception and monthly lease payments. Because most vehicles have a residual value of 50 percent or more, this change reduces the taxes owed by new lessees by 50 percent or more.

Nationally, the number of new-vehicle owners that are leasing has grown to 26 percent – a figure that has doubled over the last five years. Illinois has lagged well behind at just 14 percent. Leasing rates in Chicago are among the lowest for any metro market in the United States. By comparison, New York metro has a lease rate of 50 percent and Cleveland, 48 percent. The change in the way vehicle leases are taxed in Illinois should make leasing a much more attractive option for new-car shoppers.

“The Chicago metro market has never had good lease penetration because of the way the state taxed vehicle leases,” said Colin Wickstrom, Chicago Auto Trade Association (CATA) chairman. “With this change in the tax law customers will be able to afford more car than ever – perhaps lowering their monthly payments at the same time.”

Prior to Jan. 1, a DuPage County resident leasing a $27,000 vehicle for 36 months with no money down would expect to pay about $1,890 in state taxes. After Jan.1, that same customer would pay just $945 in taxes – assuming the vehicle had a residual value of 50 percent. That’s a savings of $945, amounting to more than $25 per month. The savings get even greater on 24-month leases or more expensive vehicles. For example, a DuPage County resident leasing a $60,000 vehicle for 24 months with a 65-percent residual prior to Jan. 1 would pay $4,200. After Jan.1, that same customer would pay $1,470 in taxes, saving $2,730 in taxes over two years.

While many assume new vehicle leasing is reserved just for luxury brands, a list of the top 10 models leased in the United States renders that assertion false. According to Experian Information Solutions, each of the top 10 lease vehicles has a starting M.S.R.P below than $25,000. In addition, compared to buying, leasing can lower the monthly payment by $100 or more.

The Illinois new-car dealers accounted for $28.4 billion in total retail sales in 2013 – 15 percent of the state’s total. “The CATA, along with the Illinois Auto Dealers Association, worked to show the Illinois Department of Revenue that changing the way the state collects tax on vehicle leases would not only be good for the consumer, but would result in more revenue for the state,” said Dave Sloan, CATA president.

Starting on Jan. 1, the CATA will launch a million-dollar educational campaign branded “The Lease You Can Do: More Car, Less Money.” The multifaceted print, broadcast and online effort is designed to help Chicago area buyers understand why vehicle leasing makes financial sense and how the leasing tax law changes will help them lower monthly payments or afford a more expensive vehicle.

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