Request By:
Mr. Marc T. Ray
Certified Public Accountant
Allen, Horton, Arvin and King
P.O. Box 490
112 West High Street
Mt. Sterling, Kentucky 40353
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
In your letter to the Attorney General, request is made for an opinion concerning the application of the motor vehicle usage tax to leased vehicles. You state that a lessee is obligated to pay a five percent (5%) tax under KRS 138.463 to the lessor in lieu of the tax imposed under KRS 138.460 upon a direct sale. (Actually the lessor is obligated to pay the tax but may pass it on to the lessee if he elects to do so.) At the end of the lease, a nominal consideration is charged to the lessee to transfer title to him. The Commonwealth then requires the former lessee to pay five percent (5%) of the book value of the vehicle before title and registration can be consummated.
As stated above, under KRS 138.463 the lessor-owner of a leased vehicle may pay the motor vehicle usage tax on a vehicle he owns by allocating the tax to the gross rental or lease charges paid by a customer-lessee of the vehicle and pay the tax so collected each month to the Department of Revenue.
The question presented is whether the collection of the motor vehicle usage tax prorated over the term of the lease of the vehicle from the owner-lessor and a further collection of motor vehicle usage tax at the time of transfer to the purchaser-lessee, is improper. The answer is no.
KRS 138.460(2)(b) applies the motor vehicle usage tax on each occasion that the ownership of the motor vehicle is transferred. The fact that you have paid a motor vehicle usage tax to the lessor as part of the lease rental of a vehicle does not relieve you under current Kentucky law from the payment of a Kentucky motor vehicle usage tax on the vehicle at the time the ownership of the vehicle is transferred to you by the lessor. You state in your letter that these circumstances create a "gross inequity." A change in the tax consequences of the transaction set forth in your letter can be brought about, however, only through legislation.
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