Within 90 Days or Lemon Law
Sales tax may be refunded if a lease is cancelled within 90 days or the vehicle is returned to the manufacturer under Minnesota’s Lemon Law. The customer may request a refund of the total sales tax paid minus any tax due for the period the vehicle was used.
The lessor must issue the refund if the amount of tax paid up-front is $500 or less. If the tax is more than $500, the customer may request a refund from the department using Form ST11, Sales and Use Tax Refund Request.
After 90 Days
If a lease is cancelled after 90 days, the lessor can give the customer a credit, but cannot issue a refund for the tax paid. The customer has 30 days to use the credit on the lease or purchase of another vehicle. The credit reduces the tax on a new purchase or lease of a vehicle.
Note: Only the customer can use the credit; it cannot be transferred or assigned to another person.
Make sure you keep documentation of the lease cancellation, including:
- Origination date, initial term, and amount of sales tax paid on the cancelled lease
- Date of the cancellation
- How the credit was calculated
Tax Credit Calculation
The tax credit is calculated with a prorated lease term based on the number of full months left in the lease:
Months remaining in the lease ÷ Months in the original lease agreement = Prorated lease term
Prorated lease term x Sales tax paid on the lease = Tax credit
Example: A 36-month lease is cancelled midway through the 12th month. There are 24 months left in the lease. The customer paid sales tax of $1,375 on the vehicle lease. The tax credit is calculated as follows:
Prorated lease term = 24 ÷ 36 = 0.67
Tax credit = 0.67 x $1,375 = $921.25