Is Texas motor vehicle sales tax due when someone barters parts for a street-legal motorcycle, and can the parts count as a trade-in?

Plain-English summary

The Texas Comptroller ruled that trading motorcycle parts for a street-legal motorcycle was a taxable motor vehicle sale even though no money changed hands.

Texas defined a sale to include exchanging property for property. The value of the parts therefore counted as consideration for the motorcycle. But the parts did not qualify for the trade-in exclusion: only another motor vehicle could be traded in to reduce the taxable value of a street-legal motorcycle. The letter specifically said an off-road motorcycle, ATV, or parts could not create that deduction.

Because this was a private-party used-vehicle sale, standard presumptive value rules also applied. Depending on the relationship between the parts' value and the motorcycle's SPV, tax could be based on the consideration, 80% of SPV, or a properly documented certified appraised value.

What this means for you

People bartering for a vehicle

Cash is not required for a taxable sale. Property, debt forgiveness, book entries, or other value can be consideration. Expect the county tax office to assign a monetary tax base.

Motorcycle buyers

Parts and off-road vehicles do not reduce the tax base as motor vehicle trade-ins for a street-legal motorcycle. Only qualifying motor vehicles receive that exclusion.

Appraisers and tax offices

When consideration is below 80% of SPV, the buyer may use a certified appraisal completed by a licensed motor vehicle dealer or licensed insurance adjuster and submitted on the Comptroller's appraisal form within the stated deadline.

Common questions

Q: Why was tax due if no cash changed hands?

A: Section 152.001(1)(B) includes an exchange of property for property within the definition of a sale.

Q: Can motorcycle parts count as a trade-in?

A: No. The trade-in exclusion applies to a motor vehicle accepted toward another motor vehicle.

Q: What rate did the letter apply?

A: 6.25%, applied under the private-party SPV rules described in § 152.0412 and Rule 3.79.

Q: Can damage reduce SPV automatically?

A: No. The letter said the public SPV figure does not account for damage or abnormal wear; a dissatisfied buyer must use the certified-appraisal process.

Citations and references

• Tex. Tax Code §§ 152.001(1)(B), 152.002, 152.021, 152.0412
• Tex. Fin. Code § 348.404
• 34 Tex. Admin. Code Rule 3.79

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/201106341L

Original ruling text

ITEM 4

June 24, 2011

Subject: 11165688-Motor Vehicle Sales Tax on Motorcycle Traded for Parts

Dear ***:

This is in response to your e-mail question concerning whether Texas motor
vehicle sales tax is due on a motorcycle when you traded parts for the
motorcycle and no money changed hands.

Response: Chapter 152 of the Texas Tax Code imposes a motor vehicle sales tax
on the exchange of property for a motor vehicle in Texas, including a street
legal motorcycle.

Section 152.021 of the Texas Tax Code imposes a motor vehicle sales tax on the
sale in Texas of a motor vehicle (including a street legal motorcycle). The
motor vehicle sales tax is based on the total consideration given for the
vehicle less any amount allowed for a motor vehicle traded in to the seller by
the purchaser.

Section 152.001 (1)(B) defines "sale" to include an exchange of property for
property or money.

Section 152.002 defines total consideration as follows:

(a) "Total consideration" means the amount paid or to be paid for a motor
vehicle and its accessories attached on or before the sale, without deducting:
(1) the cost of the motor vehicle;
(2) the cost of material, labor or service, interest paid, loss, or any other
expense;
(3) the cost of transportation of the motor vehicle before its sale; or
(4) the amount of manufacturers' or importers' excise tax imposed on the motor
vehicle by the United States.

(b) "Total consideration" does not include:
(1) a cash discount;
(2) a full cash or credit refund to a customer of the sales price of a motor
vehicle returned to the seller;
(3) the amount charged for labor or service rendered in installing, applying,
remodeling, or repairing the motor vehicle sold;
(4) a financing, carrying, or service charge or interest on credit extended on
a motor vehicle sold under a conditional sale or other deferred payment
contract;
(5) the value of a motor vehicle taken by a seller as all or a part of the
consideration for sale of another motor vehicle, including any cash payment to
the buyer under Section 348.404, Finance Code;
(7) motor vehicle inventory tax; or
(8) an amount made available to the customer under Subchapter G, Chapter 382,
Health and Safety Code

. . . .

(f) Notwithstanding Subsection (a), the total consideration of a used motor
vehicle is the amount on which the tax is computed as provided by Section
152.0412 [standard presumptive value].

Consideration can also be something other than cash, it can include property
(real or personal), a book entry reflecting cash received or paid, the
forgiveness or assumption of debt, book entries reflecting accounts receivable
or accounts payable for property, or issuance of stock when stock ownership in
the subsidiary is less than 100%.

Therefore, motor vehicle sales tax is due on the exchange of parts for a street
legal motorcycle based on the monetary value of the parts or the standard
presumptive value of the motorcycle and only a street legal motorcycle (or some
other motor vehicle) can be traded in to reduce the taxable value of the sale
of a street legal motorcycle. In other words, items such as an off-road
motorcycle, ATV or parts cannot be traded in on the purchase of a street legal
motorcycle to reduce the taxable value of the street legal motorcycle.

Furthermore, Section 152.0412 of the Tax Code and Administrative Rule 3.79
provides that motor vehicle sales tax due on private-party sales (where a
licensed dealer is not a party) of a motor vehicle is to be determined as
follows:

1. 6.25 percent of the consideration (value given of the parts) for the vehicle
   if the consideration is 80 percent or greater than the vehicle's standard
   presumptive value (SPV); or
2. 6.25 percent of 80 percent of a vehicle's SPV, if the consideration for the
   vehicle is less than 80 percent of the vehicle's SPV; or
3. 6.25 percent of a vehicle's certified appraised value as shown on a
   Comptroller’s certified appraisal form, if the consideration for the vehicle is
   less than 80 percent of the vehicle's SPV and the purchaser provides a properly
   completed certified appraisal at the time the vehicle is titled and/or
   registered.

The Texas Department of Motor Vehicles has an SPV data base for used vehicles
online at www.txdmv.gov/vehicles/titles.htm
You will need the vehicle's mileage and vehicle identification number (VIN). Be
aware that the vehicle's SPV available on the DMV’s web site to the public is
100 percent of the SPV, not 80 percent and that the SPV does not account for
damage or abnormal wear and tear. Also, if the DMVs data base shows no value,
then the bases for the sales tax reverts back to the consideration given for
the vehicle.

A person who is not satisfied with the SPV can request a certified appraisal
from either a licensed motor vehicle dealer or an insurance adjuster licensed
by the Texas Department of Insurance. All SPV appraisals must be submitted on
Comptroller of Public Accounts form 14-128, Texas Used Motor Vehicle Appraisal
Form, within 20 county working days of the sale of the vehicle.
An appraisal will not be accepted as a certified appraisal for SPV purposes
unless the appraiser is a licensed motor vehicle dealer or insurance adjuster
licensed by the Texas Department of Insurance. See Administrative Rule 3.79,
Standard Presumptive Value.

For online access to the sections of the tax code and administrative rules
noted above go to: www.window.state.tx.us/taxinfo/mtr_veh/mv_su.html.
Scroll down to either "Statutes" or “Rules” and click to open.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results. I hope this information helps. If you have further
questions, please e-mail them to [email protected].

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Sincerely,

Tax Policy Division
Comptroller of Public Accounts

From: ***
Sent: Tuesday, June 14, 2011 10:25 AM
To: Tax Help
Subject: [TaxHelp Form] Motor Vehicle
Submitted by:
E-mail address: **
name: *
email: *
Telephone Number: ****

Question: How come I have to pay sales tax when no money changes hands?

I traded parts, straight across for a motorcycle. Now Travis County requires
me to pay tax on the motorcycle. How is this even legal?