Arizona has been a quickly growing state over the last 25 years in particular, with its largest, and capital, city (Phoenix) now one of the largest 10 cities in the United States, with over a million residents. Overall, while the state has evolved from being the “wild west” because of this growth, it is still a relatively lightly regulated state compared to others, so it may not have the tax burden, but also not the legal protections, in some other states.
Specific items to know related to leasing (or buying) a car in Arizona:
- First, the good news: in Arizona the value of your trade-in is used as an offset against the price of the vehicle you are purchasing when calculating sales tax. Meaning – if you’re purchasing (or leasing) a car and the negotiated sales price is $25,000, but the dealer offers you $10,000 for your trade-in vehicle, then your net purchase price is $15,000 and that is how much you’ll be taxed on.
- Second, more good news is that while in some states a manufacturer’s rebate is treated as a payment, and therefore you are taxed on the price of the car before the rebate is applied, in Arizona you are taxed on the price AFTER the rebate. So if the agreed on price is $25,000 but then there’s a $1,000 rebate, you will pay tax on $24,000.
- The actual sales tax rate you will be charged will depend on the exact municipality where the dealer is located where you lease the vehicle. There is a state sales tax, and then both counties and cities may charge a surcharge on that rate.
- Besides the sales and use tax there is a vehicle license tax (VLT) that is part of the fee collected when you register the vehicle, and it is based on the value of the vehicle. (And the formula is a little complicated, so here’s the state website with the details).
- There is no cap on the dealer documentation fee that a dealer can charge in Arizona. The average is a little over $400, but you should ask the dealers you are considering purchasing/leasing from about the fee they charge as part of your research and price comparison. One dealer may offer a price on the car $100 less than another but then wipe out that savings with a doc fee that is $100 higher than the other dealership.