New Lease Tax Law Likely to Be On Top of Attendees’ Minds
Thanks to a new Illinois law that took effect Jan. 1, 2015, state taxes on vehicle leases were reduced by as much as 50 percent, allowing consumers to get more car for less money. House Bill 2317, signed by Gov. Pat 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. Now, customers who lease a vehicle 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.
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.”
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 $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.
On Jan. 1 the CATA launched 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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