# Lease buyout and reselling to a third party in California without double taxation



## skd (Dec 24, 2001)

Hi folks,
I am considering buying out my lease and selling it to a third party without paying the tax to DMV for my part of the transaction. I have searched the forums for this topic and learned about the California 10 day rule, however I have not seen a firm conclusion on this. Some questions:

- Has anybody here been through this in California? Please share your experience.
- Any things to watch out for? I will be purchasing my leased car from a dealer instead of BMWFS to get a better price. Does it still fall under the "sale of a vehicle to leassee by a lessor"
- Do any of the board sponsors help with this (third party buyout?) for a fee?

Thanks!

Here is the link and text from the California State Board of Equalization:

http://www.boe.ca.gov/pdf/pub34.pdf

"Transfer of a vehicle to a lessee by a lessor -as a sale for resale
The sale of a vehicle to a lessee by a lessor may be considered a nontaxable sale for resale. To be considered a non
-
taxable sale for resale, the lessee must transfer 
title and registration to a third party within 10 days from the date the 
lessee acquires title from the lessor
at the expiration or termination of a lease. Transfer of title and registration occurs 
when the lessee endorses the certificate of ownership."


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## x986 (Oct 27, 2006)

Very interesting. I'll be happy to see a consensus. I didn't think there was any way to escape taxation every single time the car changes ownership, except through a dealer.


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## Ninong (May 20, 2014)

x986 said:


> Very interesting. I'll be happy to see a consensus. I didn't think there was any way to escape taxation every single time the car changes ownership, except through a dealer.


I was thinking the same thing but the OP says he "searched the forums about this topic and learned about the California 10 day rule," which I wasn't aware of during my more than two decades working in California, but I have been retired for quite a long time now so I can't claim to be up-to-date on any of this stuff. 

Remember that when you purchase your car at the end of a BMWFS lease, you're buying it from the dealer, not directly from BMWFS. The dealer is buying it from BMWFS for resale and then he's selling it to you.


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## x986 (Oct 27, 2006)

Ninong,
In those prehistoric days when you were selling cars, did you ever hear of someone who had a friend who wanted to buy the car directly from dealer at the residual price? In today's world, aren't the residual prices generally above "fair market value"?

OP, 
What about assigning the lease a couple of months before completion?


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## ard (Jul 1, 2009)

This legislation was passed in consumer-friendly CA precisely to level the playing field between customer and dealer when it comes to buying and flipping a lease end car. No longer would a dealer get an automatics ~9% advantage...

OP- you will get dealers/salesmen telling you "oh its very complex- be fearful...be very scared". Find your own way:

Call BOE. Ask questions.
Then contact BMWFS, find out if they will withhold or charge use tax on your purchase- if they will, you need to aregue this ussue with them. Maybe ask BOE how you should handle this specific issue. (The current owner is insisting they will withold tax, even though I am selling within 72 hours- how do I prevent that?")

In the past I bought an M5 from a private party (who was leasing it) and brokered it through a dealer. for $500.. this wound up sidestepping this question, and I got it CPOd for 1800 extra. Be nice to find a dealer willing to do that. Keeping in mind that the dealer will pay LESS than your buy out, they may be incentivized by the $$ in this spread to do this. It is work, and finding a mature buyer and finance manager is key...


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## Ninong (May 20, 2014)

x986 said:


> Ninong,
> In those prehistoric days when you were selling cars, did you ever hear of someone who had a friend who wanted to buy the car directly from dealer at the residual price?


Yes, all the time, but in most of those cases the third party who was interested in buying the car instead of the dealer was a member of the lessee's immediate family: grown son or daughter, sibling, parent or even grandparent. All of those people qualify for a no-tax donation from the lessee. You can always transfer title to your child, grandchild, parent, grandparent, brother or sister without the sale being taxed provided you do not show a profit on the transfer. The bill of sale has to show it as a donation from you to your family member. That way the tax is paid only once, not twice.

You pay the tax when you purchase the car from the dealer but then you donate it to your family member at zero dollars. Obviously your family member has already given you a check for the full amount you paid the dealer. They probably gave you that check to deposit in your checking account before you completed the transaction with the dealer. In other words, that's two transactions. The dealer sells the car to you and the used car registration is reported to DMV, so the car gets registered in your name. Then you turn around and donate it to your family member. He pays registration fees but no tax. Usually the customer just waits for the new title to arrive in his name and then he and his family member go down to DMV together to have the title transferred via a donation. You may be able to complete the transaction sooner but the few times I was involved in something like that the customer simply waited for the title in his name before completing the donation transfer.

In those instances where the customer wanted to keep the car because his neighbor wanted to buy it, the customer simply allowed the dealer to negotiate an acceptable selling price directly with the neighbor. Remember that BMWFS will charge the dealer a higher payoff price if the car is sold to anyone other than the lessee (or the lessee's spouse) - California is a community property state so both "owned" the lease whether named on it or not.



> In today's world, aren't the residual prices generally above "fair market value"?


Yes, that has been more and more the case over the past several years. Previously the guaranteed residual usually ended up being right in the middle between real wholesale value and true retail value. It was a price that would definitely be attractive to someone looking to buy that particular car, unless it was trashed by the lessee. If the lessee wanted to exercise his option to buy the car at the end of the lease, the dealer would get a payoff from BMWFS, which may or may not be a reduced payoff. The dealer would add the cost of a safety inspection and smog to the selling price of the car, but that's it. That's assuming the selling price was the same as the residual value. So the selling price would be residual value plus smog and safety inspection. Back then it came to a little over a hundred bucks for the smog and safety inspection (both required by California law).

The dealer profit could come into play if the dealer could get a reduced payoff from BMWFS. That's a more recent development thanks to the overly generous residuals BMWFS often offers. Then the selling price from the dealer to the lessee is part of the negotiation process. Remember, the lessee can go through any BMW dealer at the end of the lease. It doesn't have to be the original selling dealer. Just as you can drop your car off at any BMW dealer if you want to walk away from the lease.

There were years when the dealer was happy to take in a lease turn-in and keep it for his used car operation and times when he wouldn't touch it unless BMWFS gave him a discount on the payoff. BMWFS usually wanted to avoid taking the car back, so that was always a consideration on their part. The MSRP on the new models was a lot more unpredictable 30 years ago than it is today. The reason BMW was able to brag in their national ads about how well their 2- and 3-year-old car held their resale value was because they were raising the MSRP of the next year's car by so much that it made the BMW used cars depreciate much less than usual. Just go back to the late '70's into the middle of the '80's and see the wild fluctuations in the DM:$ conversion rates. That was way before the euro and way before BMW AG got into hedging currencies around the world the way they do today. Today they might gain a little or lose a little in currency market fluctuations but they never gain as much or lose as much as they previously would have because they're spending a small fortune on hedging.

In the 1980's, dealers were happy to keep certain models for their used car operations if the customer decided to turn them in, or trade them in, at the end of a lease. Certainly not all of them but the really nice, low mileage ones. Those things would sell before they even finished getting reconditioned.


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## Ninong (May 20, 2014)

ard said:


> This legislation was passed in consumer-friendly CA precisely to level the playing field between customer and dealer when it comes to buying and flipping a lease end car.


Okay, that makes sense because that's exactly what is happening here. Do you know when it was passed?


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## ard (Jul 1, 2009)

Ninong said:


> . Remember that BMWFS will charge the dealer a higher payoff price if the car is sold to anyone other than the lessee (or the lessee's spouse) -


That is precisely opposite what has been purported.

Bmwfs prices it at market...unless it is being transfered to the leasee, in which case it is closer to the stated lease end buy out. All assumes market is UNDER lease end buy ou...if market is over then it is moot

Don't know offhand when the rule changed, would need to be at pc where I have it bookmarked...

:thumbup:


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## ard (Jul 1, 2009)

Just looked... my sources show it may have been around since 1977.

http://answers.google.com/answers/threadview/id/283166.html

http://www.bimmerfest.com/forums/showthread.php?t=612866


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## ard (Jul 1, 2009)

skd said:


> I will be purchasing my leased car from a dealer instead of BMWFS to get a better price. Does it still fall under the "sale of a vehicle to leassee by a lessor"
> - Do any of the board sponsors help with this (third party buyout?) for a fee?
> "


Would the dealer just sell it direct for the extra profit he should make for a 'sale to stranger' versus 'sale to current lessee'?

For example if you price is 27500 (and say BMWFS is really only charging them 27k) but if it was a stranger buying then BMWFS might only charge them 26500.

Just picking numbers from thin air.

back to your question- the car is being sold to the dealer and then on to you- you are correct to suspect this transaction is not a 'lessee from lessor' transfer...study the section on 'presumption'...IMO this hinges on what the title transfer will reflect.


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## Ninong (May 20, 2014)

I don't know what BMWFS' current policy is on lease-end payoffs, so I shouldn't say anything one way or the other about this. But I have read on this forum and another one that the dealer will get hit with a penalty if he resells the car to anyone other than the lessee after telling BMWFS he needs a payoff for the lessee to purchase the car. I don't remember that we ever marked up the selling price to the lessee at the end of a lease other than to charge a nominal amount for "smog & safety," which is required by law. Back then I believe the charge was $128, but that was quite a few years back. We did take in quite a few nice lease turn-ins, either because the customer traded them in on a new car or because he walked away from the lease, and those were usually sold before they even finished clearing the service department because new car salesmen would be on the phone instantly trying to "give away" this powderpuff we just took in. Once it got into the clutches of the used car department they might want to hold out for a better price.

I'm positive that during my 21 years in California, I never, ever had the experience of dealing with a lease customer who asked about exercising that 10-day resale rule and that would have been thousands of lease customers. If it has been effect all that time (I started in California in 1977) and applied to a regular customer leasing a car, you would think it would have been requested at least once during that time? Never. Not once. Because I would have remembered something like that. I'm not even sure any of our DMV ladies (meaning the ones in our office who specialized in dealing with DMV matters) would have heard about that either.

We did have quite a few customers who asked about buying the car at the end of the lease instead of trading it in on their new lease because their son wanted it or their brother wanted it, stuff like that. So we told them about the donation rules. Obviously it would have been to our advantage to tell the customer that if his neighbor wanted to but it, then just send him in to see us and we would give him a special price. That happened but not because we were trying to avoid something we didn't even know about.


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## namelessman (Dec 23, 2004)

To OP, check out pub. 34 from BOE. On page 2: 

"Transfer of a vehicle to a lessee by a lessor —as a sale for resale

The sale of a vehicle to a lessee by a lessor may be considered a nontaxable sale for resale. To be considered a nontaxable sale for resale, the lessee must transfer title and registration to a third party within 10 days from the date the lessee acquires title from the lessor at the expiration or termination of a lease. Transfer of title and registration occurs when the lessee endorses the certificate of ownership."


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## ard (Jul 1, 2009)

Ninong said:


> I don't know what BMWFS' current policy is on lease-end payoffs, so I shouldn't say anything one way or the other about this. But I have read on this forum and another one that the dealer will get hit with a penalty if he resells the car to anyone other than the lessee after telling BMWFS he needs a payoff for the lessee to purchase the car. ."


As I thought about this, there are a lot of variables at play, so a blanket statement cannot apply in terms of payoffs, more than or less than residual, etc,etc.

When the prevailing market prices are under residuals, that creates one buying strategy...if residuals are under market, it will be different.

The penalty comment I have heard is if they get a buyout for some third party, but then sell it to the current lessee. In the last few years, BMWFS has recognized that everyone just ignored the lease end buy out and went to the dealer for the sweet deal- BMWFS was leaving $$ on the table- so they started creating a different price (in some situations) when it was the leasee trying to end around the lease terms.

In terms of your personal experience...what can we say? Clearly from the thread history we are STILL waiting for someone to prove this! 



namelessman said:


> To OP, check out pub. 34 from BOE. On page 2:
> 
> "Transfer of a vehicle to a lessee by a lessor -as a sale for resale
> 
> The sale of a vehicle to a lessee by a lessor may be considered a nontaxable sale for resale. To be considered a nontaxable sale for resale, the lessee must transfer title and registration to a third party within 10 days from the date the lessee acquires title from the lessor at the expiration or termination of a lease. Transfer of title and registration occurs when the lessee endorses the certificate of ownership."


Agree. Problem is BMW and dealers may insist on taking the tax form you! How do you force them to sell the car but NOT take the tax?

Then you are stuck trying to file with BOE for a refund....


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## PhantomCypher (Sep 7, 2013)

I was able to do this in California but it takes significant leg-work on your part. 

Here is how you do it:

Find a dealer willing to work as a broker in-between you and the other private party buyer.
Negotiate a nominal brokerage fee where the dealer will "buy" your car and immediately hand over the car to the private buyer who will pay you (the difference, if any, of the lease-end dealer buyout price).
Setup a time and location with the buyer, the BMW finance department and yourself to execute the transaction (it will take a couple of hours)
Walk away with a cashiers check (if applicable) and one less car in the stable!

*the title will take up to 4 weeks to be issued to the private buyer as it has to come from the State of California and be delivered.


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## chrischeung (Sep 1, 2002)

From 2001. It always sticks in my memory.

Lease Buyout Beware!

Third-Party Transfers are Possible, but Complicated: http://www.edmunds.com/car-leasing/lease-buyout-beware.html


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## Ninong (May 20, 2014)

PhantomCypher said:


> I was able to do this in California but it takes significant leg-work on your part.
> 
> Here is how you do it:
> 
> ...


I'm just trying to understand if this is something many BMW dealers are actually doing?

If you read the reg, it looks like any lessee can simply insist on not paying the sales tax on the sale of the old leased car from the dealer back to him. To tell you the truth, I wasn't even aware of that and I started working in California in 1977. It just never came up as a question from any customer. And that was a lot of customers. A lot. Very few lessees actually exercise their option to buy the leased car at the expiration of the lease agreement. Most simply trade it in on another car or walk away from it altogether. Maybe 10% of them, at most, wanted to keep their old car and often it was to hand down to a grown son or daughter, so double taxation wasn't even on the table for discussion once we told them about DMV's donation rules.

I would be curious to know if any of the California client advisors on this forum have had any of their customers insist on buying the old car at the expiration of the lease *without* the dealership charging them sales tax on the selling price?


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## Ninong (May 20, 2014)

chrischeung said:


> From 2001. It always sticks in my memory.
> 
> Lease Buyout Beware!
> 
> Third-Party Transfers are Possible, but Complicated: http://www.edmunds.com/car-leasing/lease-buyout-beware.html


That was a very informative read, especially the part about Bank of America being licensed as a retail bank and NMAC being an indirect lender that is not licensed as a retail bank. Which explained why it was so much easier for BofA to handle the transaction from the lessee to the new buyer and impossible for NMAC to do it themselves. NMAC was forced to have the lessee go through a Nissan dealer who would buy the car from NMAC and then resell it.

That's an important point that many of the BMW customers on this board seem to forget when they say they are going to call BMWFS to complain about such-and-such. You can call them about specific questions pertaining to your open account with them but almost any other questions you have will be referred back to the dealer. They won't answer questions about any of their own special offers. They will simply tell you to talk to your dealer.

When you have a lease with BMWFS and you decide to buy the car at the end of the lease, you are buying it from the BMW dealer you chose to drop off your car. BMWFS sells it to him and then he resells it to you. That's the same with any of the manufacturers' captives.


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## Ninong (May 20, 2014)

PhantomCypher said:


> Find a dealer willing to work as a broker in-between you and the other private party buyer.
> Negotiate a nominal brokerage fee where the dealer will "buy" your car and immediately hand over the car to the private buyer who will pay you (the difference, if any, of the lease-end dealer buyout price).


You accomplished the main thing you wanted to do, which was avoid double taxation, but it still didn't work out exactly as it was described in the reg. One would _think_ that it should be possible to simply tell the dealer to not charge sales tax on the sale to you because you intended to resell the car to a third party and you intended to handle everything on your own with DMV and the BoE.

So that part is interesting -- that you actually did avoid double taxation -- even if there was a nominal "brokerage fee" involved. However, I'm still not clear from your description if you were the seller or if the brokering dealer was the seller? (P.S. -- On second thought, I guess you would have to be the seller to avoid double taxation. If the brokering dealer was the seller, then the sale would have been taxed.)

Selling the car for an agreed upon in advance low price to the lessee's friend, neighbor or co-worker is definitely something that happens from time to time, so that's not unusual at all. The part I had never heard about was the possibility of avoiding double taxation.


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## dkreidel (Aug 24, 2005)

I've done this exact transaction twice with Crevier BMW in Santa Ana CA, and assisted a friend with a similar transaction at Assael BMW in Monrovia CA

dk


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## Ninong (May 20, 2014)

dkreidel said:


> I've done this exact transaction twice with Crevier BMW in Santa Ana CA, and assisted a friend with a similar transaction at Assael BMW in Monrovia CA
> 
> dk


Were you able to avoid any "brokerage fee" of any kind?


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## Ninong (May 20, 2014)

dkreidel said:


> I've done this exact transaction twice with Crevier BMW in Santa Ana CA, and assisted a friend with a similar transaction at Assael BMW in Monrovia CA
> 
> dk


Did the dealer smog the car for you guys? I assume one of you paid for the smog and I assume the dealer probably handled that for you?

For a regular dealer sale, the car must be smogged and have a safety inspection. For a private sale, I believe the only requirement is the smog and that's something the new buyer would get before registering the car.


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## dkreidel (Aug 24, 2005)

duplicate post


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## dkreidel (Aug 24, 2005)

Ninong said:


> Did the dealer smog the car for you guys? I assume one of you paid for the smog and I assume the dealer probably handled that for you?
> 
> For a regular dealer sale, the car must be smogged and have a safety inspection. For a private sale, I believe the only requirement is the smog and that's something the new buyer would get before registering the car.


Smog wasn't required on the 650 or the 750, but my friend did pay the Assael $50 for smogging her X5.

No brokerage fee _per se_, but in my cases the buyers had the dealer CPO the cars so I suppose a brokerage fee was embedded in the deal somewhere. CPO fees were about $2.5K so you decide how much was for hard CPO costs for and how much was overhead. :dunno: Everyone smiled at the end so I surmise good deals all around.


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## namelessman (Dec 23, 2004)

ard said:


> Agree. Problem is BMW and dealers may insist on taking the tax form you! How do you force them to sell the car but NOT take the tax?
> 
> Then you are stuck trying to file with BOE for a refund....


Yes a coworker went through last year and the local dealer did not play along, He did reclaim the sales tax from BOE(albeit with 6 months delay).


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