Can a Texas dealer obtain title to a vehicle tax-free for resale, and when does registration or a manufacturer's certificate trigger tax?

Plain-English summary

The Texas Comptroller allowed a licensed dealer to obtain title to a vehicle tax-free for "resale purposes only" as long as the dealer held it exclusively for resale and did not register it.

Registration created a presumption that the dealer intended to use the vehicle, making motor vehicle sales tax due.

The letter imposed a separate limit for new vehicles still covered by a Manufacturer's Certificate of Origin. Only a dealer authorized and franchised to sell that make could acquire the new vehicle tax-free for resale. An independent used-car dealer, or a franchise dealer buying another make, owed tax even if it planned only to resell the vehicle.

What this means for you

Used-car dealers

Title and registration are different. A resale-only title may preserve the exemption, but registration indicates use and triggers tax under this letter.

New-car franchise dealers

The MCO rule is make-specific. Your franchise supports tax-free resale inventory only for the vehicle makes you are authorized to sell.

Title processors

Confirm whether the vehicle still has an MCO, whether the dealer is franchised for that make, and whether registration is requested.

Common questions

Q: Can a dealer title resale inventory?

A: Yes, without registration, under the procedure described in the letter.

Q: What happens if the dealer registers it?

A: Registration presumes use, and motor vehicle sales tax becomes due.

Q: Can a used-car dealer title an MCO vehicle tax-free?

A: No. The letter limited that treatment to new-vehicle dealers franchised for the same make.

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/200403450L

Original ruling text

March 19, 2004

Dear **:

Thank you for your e-mail regarding motor vehicle dealers attempting to title
and register vehicles tax-free "for resale purposes only".

A licensed car dealer may purchase a motor vehicle for resale without incurring
a tax liability. The vehicle must be held exclusively for resale and no other
use made. When a dealer titles and registers a vehicle, the registration
creates a presumption of use.

Because of changes to the Transportation Code in 2001, a dealer can now title
the vehicle without registering the vehicle. Therefore, we will allow dealers
to title a vehicle tax-free for 'resale purposes only' as long as the vehicle
is not registered. If the dealer registers the vehicle, he indicates intent to
use the vehicle, and he owes motor vehicle sales tax.

These procedures do not apply to vehicles that still have a Manufacturer's
Certificate of Origin. Only dealers authorized to sell new motor vehicles may
acquire a new motor vehicle for resale tax free, and only the make of vehicle
they are franchised to sell. Motor vehicle tax is due on the purchase of a new
vehicle when purchased by an independent motor vehicle dealer or a dealer
franchised to sell a different make of vehicle, even if the vehicle is being
held strictly for resale. If a used car dealer titles a vehicle with a
Manufacturer's Certificate of Origin for any reason, motor vehicle sales tax is
due.

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

Our goal is to provide you with prompt, professional service. Please take a
moment to complete our on-line survey at
http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

If you have any questions or need additional information, you can reply to this
email, call me at 1-800-531-5441 ext. 5-1477, or write to Tax Policy Division,
P. O. Box 13528, Austin, Texas 78711-3528.

Sincerely,

Carol McAnnally
Tax Policy Division