New law lowers cost of leasing a car in Md.

A change in Maryland's tax laws has reduced the cost of leasing a car, but motorists here still pay more in taxes than do those in most surrounding states.

A law that became effective July 1 eliminated the 5 percent use tax Maryland motorists were charged on their monthly lease payments. For a car costing $400 a month, the change will lower the monthly payments by $20, or $480 over a two-year lease.


"This is going to have a positive effect on leasing in Maryland," said Paul Anecharico, sales manager at Bill Kidd's Toyota & Volvo in Timonium.

The total taxes on leasing a car in Maryland were among the highest in the country, and three times greater than Virginia's rate, which encouraged some Marylanders to lease from out-of-state auto dealers.


Before the change, the manufacturer or dealer paid the state a 5 percent title tax on each vehicle leased. That cost was passed on to the consumer.

Lessees paid another 5 percent sales tax on their monthly lease payments, and if they purchased the car at the end of the lease, customers were charged another 5 percent titling tax on the residual value of the car.

Neighboring states, including Delaware, New Jersey and Pennsylvania, also taxed monthly lease payments, but none imposed all three of the taxes Marylanders had to pay. HTC "Consumers were getting hit with a double whammy or even a triple whammy. We got rid of one part, but if you buy the car after the lease expires you will still have to pay another title tax," said Sen. Barbara A. Hoffman, a Democrat who heads the Senate Budget and Taxation Committee.

The law is not retroactive. It applies only to leases entered into on or after July 1, said Joseph P. Carroll, executive director of the Maryland New Car and Truck Dealers Association. It only applies to long-term leases, not daily or weekly rentals.

"It was a ridiculous situation in Maryland," said John Sophocles, general manager of Jerry's Chevrolet on Joppa Road. "It was an impediment to dealers and consumers alike. It hurt the market here. People would just go out of state to lease a car."

A study by the Department of Fiscal Services this year showed that consumers in Maryland were taxed far greater than those in other states. For example, the combined taxes imposed for leasing a $15,000 car and then buying it after two years were $1,521 in Maryland. In contrast, taxes were $450 in Virginia; $501 in Delaware; $900 in New Jersey; and $1,185 in Pennsylvania.

The study concluded that the taxes were a reason that auto leasing in Maryland was well below the national average -- 4.9 percent here compared with 14.4 percent nationwide.

Mr. Sophocles said manufacturers had been seeking legislative relief in recent years as a way of reducing monthly costs to consumers and stimulating factory sales. In some cases, he said, a manufacturer would run a promotion offering a lease for $289 a month, but the fine print would say the lease was not available in Maryland for that price because of the taxes.