California sales tax on lease end buyout - be educated!

Discussion in 'Clarity' started by Peter CC, Oct 21, 2020.

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  1. Peter CC

    Peter CC New Member

    I was coming up on the end of my 2018 Clarity PHEV lease in early December 2020, so I started shopping around and leased the Clarity Fuel Cell, all is well. In what I thought was separate, independent transaction, I asked the sales person about buying out the lease and selling the vehicle immediately to a private person. I was going to start with craigslist. The sales person gave me a completely incorrect scenario with respect to California sales in a pass through transaction. If I immediately sold the car, I am exempt from sales tax for that transaction. The sales person told the sales tax would be collect from both me and also from the buyer. This is incorrect!

    I found the definitive answer in a document from the California Department of Tax and Fee Administration (CDTFA) in a publication entitled "Motor Vehicle Dealers", September 2019. ( This document clearly states there is 10 day window after receiving the title (Honda Financial Services in this case) to sell the car with no sales tax collected from me. I followed up with a phone call to the California Tax office. The 10 day window is the easiest way to execute the transaction with the DMV. Remember, automobile sales tax is collected by the DMV on behalf the tax authorities in California. If the transaction takes longer than ten days, the seller documents the odometer reading at the beginning of the process, the odometer at the actual sale with an explanation of the extra miles, typically test drives for prospective buyers. The agent made it clear the automobile in this transition state cannot be used for any other purpose.

    I went back to the dealer with a printout and highlighted the key passage. Both the sales person and his boss became belligerint when I pointed out their mistake. All around yet another miserable dealership experience.
    Last edited: Oct 21, 2020
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  3. GHTech

    GHTech Member

    Hi Peter,

    You are exactly correct. The only issue is finding a dealer that will do the transaction for you without collecting the Sales Tax. I had the same plan for my 2016 Ford Focus Electric that showed that I could make a profit. I have about 5 or more Ford dealers in the 10 mile range. Every dealer said that they have to collect the Sales Tax, even after I showed them that page you mentioned. They said that you can get a refund. Good luck with that happening. Anyway, I called around, and found a dealer who knew exactly what I was talking about, and processed the paperwork. The dealer doing the paperwork does get some money for their trouble. Anyway, sold the car, but lost a couple of hundred as the prices had come down significantly in those couple of weeks.


    Peter CC likes this.
  4. Daksh Raheja

    Daksh Raheja New Member

    Hi GHTech,

    I am in the same situation currently. I also have a ford focus electric lease which i have positive equity in.

    Can you share the dealership that allowed buyout without paying sales tax?

  5. GHTech

    GHTech Member

    Hi Daksh,

    The Ford dealer that I worked with was Vista Ford in Woodland Hills, CA. There was a lady there who knew exactly what I was talking about. Her name I believe was Dee Dee (older lady), but I am not 100% sure. I tried looking for any documentation, but could not find any. Even thou I had a lot of positive equity when I started the process, by the time I got the Certificate of Title, the equity had disappeared. By the time i got rid of the car, I lost about $200. Just a "heads up".


  6. Daksh Raheja

    Daksh Raheja New Member

    Thanks for providing the details. I am in OC, will try some dealerships around me if not i can go to woodland hills. Not sure if i would need to take the car with me. I would need to charge it on the way back.

    Just to know how long did the process take to loose all the equity? I still have 3 months to go and right now it seems i should have more than $2000 equity.
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  8. GHTech

    GHTech Member

    Sorry for late response. Yes, they need to see the car, so that they can read the miles on it. After they read the miles, you cannot drive the car much. Just the miles to get it back home is fine, but nothing much more than that. My payoff, I believe was about $12,800. The equity at that time was about $2,000. By the time everything was done (ready to sell) about a month later, the equity had disappeared.
  9. Daksh Raheja

    Daksh Raheja New Member

    I did payoff/buyout 2 weeks back at the dealer.

    How long did it take to get the title from buyout date for you? I have really good offer from carvana which is expiring in a week.

    I am assuming i will have to wait till i get the title from them.
  10. Peter CC

    Peter CC New Member

    This was my title timeline:
    • Oct 20, 2020 - Initiate bank transfer payoff through my Honda Financial account
    • Oct 21, 2020 - Honda Financial records the payment as having been received.
    • Oct 23, 2020 - Call Honda Lease Maturity Center (LMC) to check on status of my title.
    • Oct 26, 2020 - Call Honda Title Services to track process. I learn that LMC has the ability to put an "expedite" on the process, and that's what they did.
    • Oct 30 or 31, 2020 - Receive the title via US Mail. It is original title with Honda's "signoff". The title is now is mine to do with whatever I wish.
    • Nov 2, 2020 - Drive the car to Trade in Solutions in West LA. They offer $18,000 for the vehicle. I accept the offer and give them keys and unsigned title. They provide me a free Lyft ride back home.
    • Nov 6 or 7, 2020 - Receive $18K check from Trade In Solutions via US Mail. Deposit in bank.
    GHTech is correct about minimal driving of the vehicle once you have the title in your possession. If you can't sell the vehicle within 10 days, you will need to record any miles required to sell the vehicle (e.g. prospective buyer test drives), and then complete a form from the California tax authorities.

    N.B. You should never release physical possession of vehicle and title without payment in hand unless you absolutely trust the buyer. I had complete trust in Trade In Solutions because I had sold a 2010 Honda Fit a year earlier. I had a better offer from Vroom, but they insisted on a title that only had my name on it. To do that you have to go to DMV and get a new title issued. Who knows how long that process is going to take in the middle of a pandemic! There was so much misinformation about this whole process, I was happy to take the $18K from Trade In Solutions.
    Mmisola likes this.

  11. I wonder how things are going now
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  13. nobody93

    nobody93 New Member

    Hi got a question about your timeline. I leased a car from Honda but a gasoline one. They sent me the release of the title. But according to DMV and CarMax/Shift, the title does not belong to me. I have to drive a title transfer which takes another 2 to 4 weeks. You said Trade in Solutions will accept that even the title is not yours(you paid off though)?

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