If I bought a car in Virginia before July 1, 2013 but didn't title it at DMV until after, do I pay 3% or 4% sales tax?

Plain-English summary

The 2013 General Assembly's HB 2313 raised Virginia's motor vehicle sales and use tax from 3% to 4%, effective July 1, 2013. This created a practical question for dealers, DMV, and buyers: what rate applies when a vehicle is bought before July 1 but not titled at DMV until after July 1?

Two legislators, the DMV Commissioner, and the Motor Vehicle Dealer Board asked the AG to clarify, and specifically to revisit a 1987 AG opinion (issued to then-Senator Virgil Goode) that had reached a different conclusion in a different fact pattern.

The 1987 opinion's context. The 1987 opinion addressed a car bought in North Carolina before a Virginia rate increase, then titled in Virginia after. It concluded that the Virginia use tax was imposed at the rate in effect at the time of titling, because Virginia had no nexus with the North Carolina transaction until the title application. That was a sound conclusion for that fact pattern.

The 2013 opinion's correction. The 1987 opinion contained language that could be read as a general statement that the tax rate was always determined at the time of titling. The AG clarified that this would be wrong for an in-state Virginia transaction.

The interpretive analysis. Va. Code § 58.1-2402 levies "a tax upon the sale ... of motor vehicles in Virginia." Va. Code § 58.1-2401 defines "sale" to include "any transfer of ownership or possession." When ownership or possession transfers, that is the sale. The tax is imposed at that moment.

Va. Code § 58.1-2404 then says the tax is "collected by the [DMV] Commissioner at the time the owner applies ... and obtains, a certificate of title." But collection is distinct from imposition. The tax is owed from the moment of sale; DMV is just the collector at the back end.

So for a Virginia sale that occurred on June 30, 2013, the tax rate is 3% (the rate in effect at sale), even if the buyer titles the vehicle on July 15, 2013. The buyer pays 3% to DMV when titling.

The North Carolina scenario remains separate. A vehicle bought out of state and titled in Virginia is not a Virginia sale; Virginia has no taxing nexus with the out-of-state transaction (Ryder Truck Rental). The Virginia tax kicks in at titling, which is the first Virginia nexus. So for that scenario, the 1987 opinion's outcome (tax at the titling-time rate) remains correct, just for different reasons.

The AG noted significant changes in the motor vehicle industry since 1987 (electronic titling, dealers required to collect tax for financed transactions, the rarity of buyer-self-titling). Those changes don't alter the answer; they actually make it easier to apply the rule because dealers know the sale date and apply the contemporaneous tax rate.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The motor vehicle sales and use tax rate has been further adjusted since 2013. Anyone dealing with a current tax rate question should look at the current statutes and any DMV guidance.

Common questions

What's the difference between "imposing" and "collecting" a tax?
"Imposing" means the moment the tax legally attaches. "Collecting" means the moment the government actually receives the money. For motor vehicle sales tax, the tax attaches when the sale happens (ownership or possession transfers); the dealer or buyer pays it later, at DMV. The rate in effect at imposition governs.

What's a "sale" for purposes of this tax?
"Any transfer of ownership or possession," per § 58.1-2401. Whichever happens first. If you take delivery of a car (possession transfer) before signing the title transfer (ownership transfer), the sale date is the delivery date. If you sign the title transfer but the car isn't delivered until later, the sale date is the title transfer.

What about a deposit on a car?
A deposit alone is not transfer of ownership or possession. The sale happens when the car is actually delivered or title formally transfers. The deposit secures the transaction; it does not consummate it.

What about lease transactions?
The opinion focuses on sales. Leases have their own tax rules in Virginia, addressed elsewhere in Title 58.1. The general principle (rate at the time of the taxable event) would apply, but the specifics of "sale" don't translate directly.

What if a dealer charged the wrong rate?
The dealer's tax statement to the buyer would reflect the wrong rate. The buyer would either pay the wrong amount at titling (and need a refund) or pay the right amount (and the dealer's paperwork would need correction). Practically, dealers update their systems on rate change dates to avoid these issues.

What if I bought from a private seller?
Private-seller sales are handled differently in Virginia, but the underlying timing principle is the same. The tax is on the sale, at the rate in effect when the sale happens.

Does this opinion address state-to-state moves?
Yes, but only obliquely. The opinion preserves the 1987 result for out-of-state purchases titled in Virginia (rate at titling), explaining that the difference is the lack of Virginia nexus to the out-of-state transaction.

What happened to the 1987 opinion?
It's not overruled wholesale. The AG specifically said the 1987 opinion's result (rate at titling for a North Carolina purchase) was correct for that fact pattern, but the reasoning (suggesting that rate is generally determined at titling) was overbroad and should not be read to apply to in-state Virginia sales.

Background and statutory framework

The statutory framework:

• Va. Code § 58.1-2401: defines "sale" as "any transfer of ownership or possession."
• Va. Code § 58.1-2402: levies the motor vehicle sales tax on "the sale ... of motor vehicles in Virginia."
• Va. Code § 58.1-2404: collection at titling.
• Va. Code § 58.1-600 et seq.: general retail sales and use tax (contrast: collected from dealer at sale).
• 2013 Va. Acts ch. 776: the rate increase from 3% to 4% effective July 1, 2013.

The interpretive moves:

• Plain meaning of defined terms; the statutory definition of "sale" is binding (Hubbard v. Henrico Ltd. P'ship).
• Distinction between imposition (the moment the tax attaches) and collection (the moment government receives the money).
• Taxing jurisdiction requires nexus (Ryder Truck Rental); out-of-state transactions don't create Virginia liability until a Virginia connection forms (titling).

Citations

• Va. Code §§ 58.1-2401, 58.1-2402, 58.1-2404
• Va. Code § 58.1-600 et seq.
• N.C. Gen. Stat. § 105-164.4 (1985)
• 2013 Va. Acts ch. 776
• Hubbard v. Henrico Ltd. P'ship, 255 Va. 335, 497 S.E.2d 335 (1998)
• Ryder Truck Rental v. Cnty. of Chesterfield, 248 Va. 575, 449 S.E.2d 813 (1994)
• 1986-87 Op. Va. Att'y Gen. 336

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/13-043_Habeeb_et_al.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

May 22, 2013

The Honorable Gregory D. Habeeb
Member, House of Delegates
Post Office Box 882
Salem, Virginia 24153

The Honorable Johnny S. Joannou
Member, House of Delegates
709 Court Street
Portsmouth, Virginia 23704

The Honorable Richard D. Holcomb
Commissioner, Department of Motor Vehicles
2300 West Broad Street
Richmond, Virginia 23269

Mr. Bruce Gold
Executive Director, Motor Vehicle Dealer Board
2201 West Broad Street
Richmond, Virginia 23220

Dear Delegates Habeeb and Joannou, Commissioner Holcomb, and Mr. Gold:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You inquire regarding the implementation of the increase, from 3% to 4%, in the motor vehicle sales and use tax rate that was enacted by the 2013 Session of the General Assembly and that is scheduled to become effective on July 1, 2013.[1] Specifically, you ask which tax rate, 3% or 4%, should be imposed when a motor vehicle is purchased prior to July 1, 2013 but titled by the Virginia Department of Motor Vehicles ("DMV") subsequent to that date. Your inquiry states that a similar question previously was addressed by an official opinion of this Office,[2] and you have asked that the conclusion in that opinion be re-visited in light of changes in the motor vehicle industry and procedures at DMV since that time.

Response

It is my opinion that the proper tax rate to impose on a vehicle sale transaction in Virginia is the tax rate in effect at the time of the sale, when ownership or possession of the vehicle is transferred, whichever of these events of sale occurs first. After the tax is imposed on the sales transaction, the tax is then owed and is paid and collected when the vehicle is titled by the DMV.

Background

In an official opinion to former State Senator Virgil Goode,[3] former Attorney General Mary Sue Terry responded to an inquiry asking which motor vehicle sales and use tax, raised from 2% to 3% effective January 1, 1987, would apply to a vehicle purchased in North Carolina prior to January 1, 1987, but not titled in Virginia until after January 1, 1987. At the time, the opinion noted that North Carolina imposed its tax at the time the vehicle was sold and the North Carolina tax was collected by the motor vehicle dealer.[4] In contrast to North Carolina and unlike the Virginia retail sales and use tax, §§ 58.1-600, et seq., the Virginia motor vehicle sales and use tax is collected from the purchaser or user of the vehicle and not from the motor vehicle dealer. The opinion cited Virginia Code § 58.1-2404, which states that the sales and use tax "shall be paid by the purchaser or user ... and collected by the [DMV] Commissioner at the time the owner applies ... and obtains, a certificate of title ...." Therefore, the opinion concluded that in the case inquired about, the use "tax should be imposed at the rate in effect at that time [of titling] and not at the rate in effect when the vehicle was actually purchased."

I understand, based on information set forth in your inquiry, that the manner in which motor vehicles are sold and titled in Virginia has changed significantly in the last twenty-five to thirty years. The case where a purchaser pays the dealer for a vehicle and then the purchaser goes personally to DMV to title and register that vehicle is rare. Now, in a majority of sales, you state (1) that most vehicles are financed or leased and the dealer must collect the tax to complete the titling; (2) dealers are required by the Virginia Code to complete their titling and registration transactions with DMV electronically, so they must collect the sales tax from the customer to do so; and (3) the DMV Dealer Manual instructs dealers when they must collect the tax and notes that they have 30 days to remit the tax to DMV. You suggest that these changes in the industry and DMV procedures necessitate a change in the conclusion of the official opinion to Senator Goode, at least with respect to vehicles sold in Virginia. While it is undoubtedly true that many significant changes have occurred in the last twenty-five to thirty years, the answer to your question regarding a vehicle sale occurring in Virginia is found from the plain meaning of the relevant statute.

Applicable Law and Discussion

Section 58.1-2402 provides that "There is hereby levied, in addition to all other taxes and fees of every kind now imposed by law, a tax upon the sale ... of motor vehicles in Virginia," with exceptions not here relevant. Section 58.1-2401 defines "sale" to include "any transfer of ownership or possession." "When ... a statute contains no express definition of a term, the general rule of statutory construction is to infer the legislature's intent from the plain meaning of the language used."[5] The corollary to this is that effect will be given to defined terms.

Based upon the plain meaning of the defined term "sale," it is clear that the sales tax is imposed at the rate in effect at the time of the sale, when ownership or possession of the vehicle is transferred, whichever of these events of sale occurs first. After the sales transaction, pursuant to § 58.1-2404, the tax is "collected by the [DMV] Commissioner at the time the owner applies ... and obtains, a certificate of title...." (emphasis added).

This conclusion flows from the recognition that the time a tax is collected does not equate to the time that a tax is determined or imposed. To the extent that the prior opinion may be read to equate these two distinct events, it would be in error. Nevertheless, I note that the prior opinion dealt with a factual scenario very different from the one you present. Specifically, you ask about taxation related to the purchase of a vehicle in Virginia, while the prior opinion addressed the imposition of a Virginia tax on a "motor vehicle purchased in North Carolina ... but [subsequently] titled in Virginia ...."[6] The purchase of a vehicle in North Carolina cannot, without more, give rise to Virginia's imposing a tax because there is no nexus between Virginia and the North Carolina transaction.[7] Thus, for transactions such as the North Carolina motor vehicle purchase referenced in the 1987 opinion, it is not until there is a Virginia nexus, such as the application for a Virginia title, that a Virginia tax may be imposed. Therefore, the prior opinion does not address the specific question you pose.

Conclusion

Accordingly, it is my opinion that the proper tax rate to impose on a vehicle sale transaction in Virginia is the tax rate in effect at the time of the sale, when ownership or possession of the vehicle is transferred, whichever of these events of sale occurs first. After the tax is imposed on the sales transaction, the tax is then owed and is paid and collected when the vehicle is titled by the DMV. Consequently, it is my opinion that a vehicle sales and use tax rate of 3% should be imposed when a vehicle is sold in Virginia prior to July 1, 2013, but titled by the DMV subsequent to that date.

With kindest regards, I am

Kenneth T. Cuccinelli, II
Attorney General

[1] 2013 Va. Acts ch. 776.

[2] See 1986-87 Op. Va. Att'y Gen. 336.

[3] Id.

[4] N.C. Gen. Stat. § 105-164.4 (1985).

[5] Hubbard v. Henrico Ltd. P'ship, 255 Va. 335, 497 S.E.2d 335, 338 (1998).

[6] 1986-87 Op. Va. Att'y Gen. at 336.

[7] See, e.g., Ryder Truck Rental v. Cnty. of Chesterfield, 248 Va. 575, 578, 449 S.E.2d 813, 815 (1994) (citations omitted) ("A prerequisite of a jurisdiction's authority to tax ... is the existence of a substantial nexus between the taxable instrumentality and the taxing jurisdiction.").