Is Texas motor vehicle sales tax due when vehicle titles transfer between corporations in a statutory merger or consolidation?

Plain-English summary

The Texas Comptroller concluded that no motor vehicle sales tax was due on either of two corporate restructurings because the vehicle transfers resulted directly from statutory mergers and all the vehicles were already titled in Texas.

One transaction divided a corporation into a surviving corporation and a new corporation, allocating half the original company's assets to the new entity. The other combined and divided assets among surviving and new corporations. The letter treated both as mergers within the Texas Business Corporation Act definition.

Rule 3.64(b)(5) exempted a vehicle title transfer into the surviving corporation when made through a statutory merger or consolidation. The Comptroller read the rule's intent more broadly to cover vehicle transfers between corporations resulting from qualifying statutory mergers or consolidations.

What this means for you

Corporate tax and M&A teams

The transaction had to qualify as a statutory merger or consolidation, not merely an informal asset transfer. The Texas-title condition was also express in the result.

Fleet and title teams

Document the merger plan and confirm that each affected vehicle is currently titled in Texas before applying the historical treatment.

Common questions

Q: Did the exemption cover a corporate division?

A: Yes. The cited Business Corporation Act definition included division into a surviving corporation and one or more new entities.

Q: Did it cover a combination of corporations?

A: Yes. The definition also covered combinations resulting in surviving or newly created entities.

Q: What vehicle-title condition applied?

A: The Comptroller's conclusion required all affected vehicles to be currently titled in Texas.

Citations and references

• 34 Tex. Admin. Code § 3.64(b)(5)
• Texas Business Corporation Act art. 1.02(a)(18)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200205102L

Original ruling text

May 16, 2002

Dear **,

This is in response to your inquiry concerning the motor vehicle sales tax
consequences of transferring motor vehicles between various corporations as a
direct result of a statutory merger.

Your situations were as follows:

Situation 1: A and B each own 50% of the stock of corporation X. X adopts a
plan of merger, pursuant to which X divides into X and Z, a new corporation.
In the merger, half of the assets of X, including motor vehicles, is allocated
to and vests in Z. X retains the other half of its assets. B's stock in X
converts into stock of Z. A's stock in X remains unchanged.

Situation 2: A and B each own 50% of the stock of corporation X. B owns 100%
of the stock of corporation Y. X and Y adopt a plan of merger, pursuant to
which X and Y merge, resulting in X surviving and the creation of a new
corporation Z. Y ceases to exist, In the merger, half of the assets of X,
including motor vehicles, is allocated to and vests in Z. X retains the other
half of its assets. All of the assets of Y are allocated to and vest in Z.
B's stock in X converts to stock in Z. B's stock in Y converts to stock of Z.
A's stock in X remains unchanged.

Motor vehicle sales and use tax is not due upon the transfer of title to a
motor vehicle into the name of a surviving corporation when such transfer is
made pursuant to a statutory merger or consolidation of two or more
corporations. 34 Tex. Admin. Code Section 3.64(b)(5).

The clear intent of Rule 3.64(b)(5) is that any transfer of motor vehicles
between corporations as a result of a statutory merger or consolidation, as
those terms are defined in the Texas Business Corporation Act, is not subject
to Texas motor vehicle sales tax.

Article 1.02(a)(18) of the Texas Business Corporation Act defines a merger as
follows:

(a) the division of a domestic corporation into two or more new domestic
corporations or into a surviving corporation and one or more new domestic or
foreign corporations or other entities, or

(b) the combination of one or more domestic corporations with one or more
domestic or foreign corporations or other entities resulting in

(i) one or more surviving domestic or foreign corporations or other entities,

(ii) the creation of one or more new domestic or foreign corporations or other
entities, or

(iii) one or more surviving domestic or foreign corporations or other entities
and the creation of one or more new domestic or foreign corporations or other
entities.

Therefore, no motor vehicle sales tax is due in either situation 1 or 2 since
the transfers are the result of a statutory merger or consolidation, provided
all of the motor vehicles are currently titled in Texas.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need additional information, do not hesitate to
call toll free 1-800-531-5441, extension 3-4986, or write to the Comptroller of
Public Accounts, Tax Policy Division, Austin, TX 78774.

Sincerely,

Ken Koch
Tax Policy Division