Car lease payment went up after moving to new state

Question

Recently, I moved to Kentucky from Ohio and my monthly auto lease payment with Chase Bank went up by about 8%. How is this possible if the tax difference between each state is only 0.5%?

According to Chase Bank's explanation, Ohio charges full sales tax upfront during the lease process of a vehicle, whereas Kentucky charges a sales tax every month during the life of the lease. In order to get a credit issued, Chase instructed me to take a piece of paper (that they sent me) showing my Ohio purchase details to the Kentucky DMV so that a credit would be issued to Chase, and thus allowing them to lower my payment back down. The DMV does't even acknowledge it, however.

I'm surprised enough of as it is that Chase is making me do all of this work when they have all of the purchase details themselves.

What is the actual process for getting a refund AND my monthly payment back down to its lower amount? I'm fine with a small difference in taxes from state to state, but $30 extra a month is unfair. Was Chase incorrect with suggesting it was the DMV I need to go to? Certainly this has to happen frequently... I'm just not sure why the 2 entities would be in disagreement with each other.

Answer 1

What Chase told you is correct. You are paying for a big sales tax because the state of Ohio is assuming you bought the car in Ohio. Just fill out the form like they said and send it in.

The Kentucky revenue web site says the following:

Credit to New Residents of KY -

When offering a vehicle for registration for the first time in Kentucky which was registered in another state that levied a tax substantially identical to Motor Vehicle Usage Tax, a credit against the Usage tax equal to the amount of tax paid to the other state will be granted. No credit shall be given for taxes paid in another state if that state does not grant similar credit to substantially identical taxes paid in Kentucky.

Proof of Tax Paid can be provided by one of the following:

• Registration documentation from previous state.

• Title document from previous state can be used if the tax amount paid to the other state is clearly identified.

• Purchase Contracts can be used if the tax amount paid to the other state is clearly identified. The Purchase Contract must list the names of the buyer and seller, the amount of tax collected and paid, and the identity of the vehicle being registered. This form must accompany the completed TC 96-182. Finance Contracts are not accepted.

Here is another relevant blurb from a county clerk:

Upon first time registration of a vehicle in Kentucky, the County Clerk collects a 6% usage tax. On a used vehicle, the tax is based on the current trade-in value according to the NADA guide. Tax credit may be obtained for any previous sales or usage tax paid to another state by the current registered owner. If there is a difference between previous tax paid by current owner and tax due Kentucky, then the applicant will be expected to pay the difference. The tax proof must be in your name and be on an invoice from the dealer or from the Department of Revenue where the vehicle was registered. Acceptable proof of sales or usage tax paid in another state must include the name of registered owner, vehicle identification number and amount of state sales tax paid. It may also be listed on the Out-of-State Title. If the vehicle was previously registered in Kentucky under the current owner's name, then Usage Tax will be waived. When registering a 'brand new' vehicle in Kentucky, it is necessary for you to complete the Total Consideration Section on the Application for Title/Registration (TC 96-182) attesting to the purchase price of the vehicle. TC 96-182 form must be signed by both the seller and buyer and notarized. If both signatures cannot be obtained to sign the TC 96-182 form, it is necessary for you to present the window sticker or factory invoice stating the Manufacturer's Suggested Retail Price of the vehicle, including options and destination charges. Kentucky residents registering a vehicle purchased out of state must also complete the Total Consideration section on the TC 96-182 form, the application must be signed by both the seller and the buyer attesting to the purchase price of the vehicle. If the seller is not available to sign the TC 96-182, the tax will be based on 6% of the average retail value according to the NADA guide.

Answer 2

Most likely, your error was going to the DMV. The tax is, well, a tax, and collected by the Department of Revenue, not the Department of Motor Vehicles. As such, you need to to go the Department of Revenue to get your refund, if one applies.

However, it's not entirely clear to me that you could get a refund. The applicable law states:

138.460

6) (a) When a person offers a motor vehicle:

1. For titling on or after July 1, 2005; or

2. For registration;

for the first time in this state which was registered in another state that levied a tax substantially identical to the tax levied under this section, the person shall be entitled to receive a credit against the tax imposed by this section equal to the amount of tax paid to the other state. A credit shall not be given under this subsection for taxes paid in another state if that state does not grant similar credit for substantially identical taxes paid in this state

Credits aren't always refundable, though they do in 6b clarify another credit as specifically nonrefundable, so it's possible this one is. If you haven't registered yet, you may be able to still change this, but it's possible you can't get a refund at this point. It is however possible you might be able to avoid tax in the future; I would highly recommend calling up the department of revenue and asking.

You will also have to verify that Ohio qualifies as "substantially identical" and that they do grant similar credit for Kentucky's taxes.

Notably, the department of revenue's Motor Vehicle Usage Tax site does not have a form to request a refund of the usage tax, except for very specific reasons (mostly having to do with damage to the vehicle).