Does a vehicle lessor owe Texas motor vehicle sales tax when buying a vehicle exclusively to lease to the American Red Cross?

Plain-English summary

The Texas Comptroller ruled that a leasing company owed no motor vehicle sales tax when it bought a vehicle to lease to the American Red Cross.

For this tax, the Red Cross was treated as an instrumentality of the federal government and received comparable tax benefits.

The exemption depended on continuing exempt use. If the vehicle stopped being leased to the Red Cross, motor vehicle tax became due based on the owner's book value.

What this means for you

Vehicle lessors

Keep the lease and use records tying the vehicle to the Red Cross. A later reassignment to another customer can trigger tax under the change-in-use rule described here.

Fleet accountants

Track book value at the date exempt use ends because the letter used that value as the tax base.

Common questions

Q: Why was the purchase exempt?

A: The Comptroller treated the American Red Cross as a federal instrumentality for motor vehicle tax purposes.

Q: What happens when the Red Cross lease ends?

A: If the vehicle ceases to be leased to the Red Cross, tax becomes due based on the owner's book value.

Citations and references

• The letter cites no specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200209465L

Original ruling text

September 26, 2002

Dear **:

Your facsimile to Ms. Donna Chamberlain about motor vehicle sales tax has been
forwarded to me for a response. I am pleased to be of assistance.

You asked about the taxability of a lessor's purchase of a vehicle to be leased
to the American Red Cross. The lessor is CAR COMPANY.

No motor vehicle sales tax is due from CAR COMPANY, on its purchase of a motor
vehicle that will be leased to the American Red Cross. The American Red Cross,
for the purpose of this tax, is considered an instrumentality of the federal
government and enjoys similar tax benefits. If the vehicle ceases to be leased
to the American Red Cross, motor vehicle tax will be due based on the owner's
book value of the motor vehicle.

The entire text of the Tax Code, a complete set of rules, and other information
are available through our web site at through the
"Texas Taxes" window.

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

If you need further assistance, I will be glad to help you. You may e-mail me
at , or you may call me toll-free at 1-800-531-5441,
extension 3-4622.

Sincerely,

Stefanie B. Medack
Tax Policy Division