Reviewed by Arthur Geller, Auto Lease Concierge · Updated · How our numbers work
If you live in New Jersey and you've been comparing lease ads, you've probably noticed the payments don't add up. That's because New Jersey taxes a lease differently from Pennsylvania and most other states. Instead of adding tax to every monthly payment, New Jersey charges its 6.625% sales tax once, at the start of the lease.
I write leases for drivers in Camden, Burlington, Gloucester and Mercer counties, and every one of those quotes is figured with New Jersey tax. Here's how the tax actually works.
How is a car lease taxed in New Jersey?
New Jersey's Division of Taxation explains the rules in its bulletin S&U-12. For a lease longer than six months, the full sales tax is due up front. The leasing company picks one of two ways to figure the taxable amount:
- Total lease payments: the sum of your monthly payments plus things like the acquisition fee and any cash you put down to lower the payment, minus your trade-in.
- Purchase price: what the leasing company paid for the car, plus add-ons, minus your trade-in.
You don't get to choose the method. The lender decides, and your quote should show the tax it comes up with.
What does New Jersey lease tax look like on a real lease?
Here's an example with made-up but typical numbers, using the total lease payments method:
| Item | Amount |
|---|---|
| Monthly payment before tax | $400 |
| Term | 36 months |
| Total of payments ($400 × 36) | $14,400 |
| Cash down that lowers the payment | $1,000 |
| Amount taxed | $15,400 |
| New Jersey sales tax at 6.625% | $1,020.25 |
That $1,020.25 is due when the lease starts. With no cash down, it would be 6.625% of $14,400, or $954.
Should I pay the tax at signing or roll it into the lease?
Paying it at signing keeps your monthly payment lower and avoids paying the lease's finance charge on the tax. Rolling it in keeps more cash in your pocket on delivery day. In the example above, rolling in about $1,020 adds roughly $30 a month over 36 months once the finance charge is included.
Either is fine. If there's a chance you'll end the lease early, ask how the tax is handled before you choose. I'll show you both versions so you can pick.
Does a trade-in lower New Jersey lease tax?
Yes. Your trade-in value comes off the taxable amount under either method. If you owe more on your current car than it's worth, that negative equity can be added to the new lease, but it doesn't reduce the tax.
What other New Jersey charges show up on a lease?
- Title and registration: paid to the New Jersey Motor Vehicle Commission when the car is registered at your address.
- Luxury and fuel-inefficient vehicle surcharge: New Jersey charges a one-time 0.4% surcharge on new cars with a price of $45,000 or more, or a fuel economy rating under 19 mpg. Cars rated 40 mpg or better and zero-emission vehicles are exempt from the price test. The MVC's surcharge FAQ has the details. If it applies to your car, it's on your quote.
How is this different from Pennsylvania?
Pennsylvania taxes each payment instead: 6% sales tax plus a 3% lease tax, so 9% on every payment (Philadelphia adds 2% more). On the same $400 payment, a Pennsylvania driver pays $36 a month in tax, or $1,296 over 36 months. New Jersey's up-front tax is usually lower in total, but it lands all at once.
That's also why the specials on my site look different for New Jersey drivers. Posted payments are shown before tax and worked up for Pennsylvania, so your New Jersey quote won't match the posted number. The car, term and miles are the same. Only the tax is different.
Want the real number for your address?
If you already have a lease quote from a New Jersey or Pennsylvania dealer, send it to me on Beat My Quote. I'll check that the tax is figured correctly for your New Jersey address and tell you whether I can beat the deal.