How is a car lease taxed in Colorado?

What this means for your lease

In plain English: tax is added to each monthly payment. Colorado's state-level lease tax rate is 2.9% (before any local add-on).

Your cap-cost reduction (cash down or rebates applied as a down payment) IS taxed in Colorado, so putting more cash down does not escape the tax. Positive equity from a qualifying trade-in is not taxed.

The detail

Colorado taxes motor-vehicle lease payments at the 2.9% state rate plus state-administered local taxes (CDOR, Sales & Use Tax Topics: Motor Vehicle Leases, rev. July 2026). Leases of more than 36 months must be taxed on every payment. For leases of 36 months or less, a lessor that paid sales tax when it bought the vehicle does not have to collect tax on the payments; a lessor that received CDOR permission (form DR 0440) to buy the vehicle tax-free must collect tax on each payment. Sales tax also applies to the entire initial payment at signing (cap-cost reduction, first payment and other charges), except for direct government charges such as title and registration fees paid to the county clerk. Manufacturer rebates and state or federal EV tax credits assigned to the dealer or lessor do not reduce the taxable amount at signing. The fair market value of an owned vehicle traded in is excluded from the taxable amount.

Local add-ons

State-administered county, city and special district sales taxes add to the 2.9% state rate. Lease payments are sourced to the vehicle's primary property location (the address the lessee provides for the vehicle), not the dealer's or lessor's location. Self-collecting home-rule cities impose their own sales taxes, which CDOR does not administer; rates for each jurisdiction are listed in CDOR publication DR 1002.