How is a car lease taxed in Washington?

What this means for your lease

In plain English: tax is added to each monthly payment. Washington's state-level lease tax rate is 7% (before any local add-on).

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

The detail

Washington taxes each monthly lease payment at 7.0% before local tax: the 6.5% retail sales tax plus the 0.5% motor vehicle sales/use tax, which applies to leases and rose from 0.3% to 0.5% on January 1, 2026 (RCW 82.08.020). Cap-cost reduction / cash down is generally taxable. A vehicle the lessee owns can be used as a trade-in to lower the tax: like-kind trade-in value is excluded from the selling price, and tax applies to payments only after it is used up (RCW 82.08.010; WAC 458-20-247(13)); a leased car must be bought first to count as a trade-in. Not included: the luxury motor vehicle tax, 8% of value above $102,000 (as of July 1, 2026), which also applies to leases. Quirk: the first 36 months of lease payments are exempt from the voter-approved local 'public safety' tax component; leases beyond 36 months pay the regular full rate thereafter. Short-term rentals are sourced to lessor location; longer leases sourced to lessee.

Local add-ons

Local sales taxes apply on each lease payment on top of the 7.0% state rate, which already includes the 0.5% motor vehicle sales/use tax. Local rates vary by location and change quarterly; Department of Revenue rate tables for October 1 to December 31, 2026 list local rates from 1.1% to 4.2%. For a longer-term lease, lease payments use the local rate where the lessee usually keeps the vehicle, while any down payment (cap-cost reduction) or payoff uses the rate at the lessor's business location.