When did mileage on a dealer's tax-free resale vehicle indicate taxable use rather than minimal customer demonstration?

Plain-English summary

A dealer could title a vehicle bought tax-free for resale when a lender required title to record a lien, but using it beyond minimal customer demonstrations made tax due.

The Comptroller called the prior 2,000-mile allowance “extremely excessive.” For future cases, an odometer reading over 50 miles could reasonably indicate use other than customer demonstration. The dealer could submit records showing the excess mileage came from demonstrations and obtain a refund if the Comptroller accepted that proof.

What this means for you

Motor vehicle dealers

Keep demonstration logs and mileage records for titled resale inventory. Under this letter, crossing 50 miles shifted the practical burden toward documenting customer-demonstration use.

County tax offices and tax professionals

The letter described a reasonable presumption, not an absolute statement that every mile over 50 was taxable. It expressly allowed contrary documentation and a refund.

Common questions

Q: Did obtaining title for a lender automatically create tax?

A: No. The issue was nonminimal use after tax-free registration for resale, not title alone.

Q: Was 50 miles an absolute limit?

A: No. More than 50 miles supported an assumption of taxable use, but the dealer could prove the mileage was for customer demonstrations.

Citations and references

• The letter refers generally to the Tax Code without citing a section number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200104182L

Original ruling text

April 20, 2001

Dear **:

Thank you for your recent letter.

A dealer may be required by a lending institution to obtain a Texas Certificate
of Title in order to record a lien on a vehicle purchased for resale. In the
past, you have allowed an odometer reading of up to 2000 miles before accessing
use tax to the dealers. You would like a method of determining minimal tax.

The Tax Code clearly imposes tax on a vehicle that is purchased for use in
Texas. Once a dealer has registered a vehicle tax-free for the purpose of
resale, any use of the vehicle by a dealer other than minimal use for customer
demonstration, will require tax be paid. It is difficult to come up with an
exact mileage figure when discussing this issue. However, 2000 miles is
extremely excessive. For future purposes, if an odometer statement indicates
the vehicle was driven more than 50 miles it would be reasonable to assume use
of the vehicle other than for demonstration occurred. The dealer may document
to the Comptroller the excessive use. If it is determined that the excessive
use was for customer demonstration then a refund may be issued.

As always, thank you for the efforts you make in collecting the motor vehicle
tax that is due to the state. We know, based on the many different scenarios,
this is not always an easy task. If you have any questions, please do not
hesitate to call me toll free at 1-800-531-5441, extension 3-2995. The direct
number is 512/463-2995.

Sincerely,

Irene Cage
Tax Policy Division