What tax liability arose if a licensed Texas dealer let another person operate under the dealer's registration number?

Plain-English summary

A licensed dealer could not safely rent or lend its dealer registration number to another person. The Highway Department reportedly considered the arrangement a rules violation that could cause loss of the dealer license.

An earlier administrative-law decision had treated sales made with a dealer's number and permission as dealership sales even when another party claimed to own the vehicles. Title assignment and reassignment had to use the exact dealership name tied to the number.

If the Highway Department nevertheless allowed the proposed arrangement, the client could obtain resale privileges, but the Comptroller would hold both parties jointly and severally liable as sellers for any tax and require both to keep records for every vehicle sale. The source's four-percent rate is historical.

What this means for you

Dealer credentials are not transferable conveniences. Allowing another business to use them can create licensing exposure, attribution of sales, shared tax liability, and recordkeeping duties.

Common questions

Q: Could the dealer lose its license?
A: The Highway Department reportedly said yes.

Q: Who would owe tax if the arrangement operated?
A: Both dealer and client could be jointly and severally liable.

Q: Is the four-percent rate current?
A: No; STAR expressly warns otherwise.

Citations and references

The letter cites no numbered statute or rule. It references Highway Department dealer rules and a prior Comptroller administrative-law decision.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8405L0569A03

Original ruling text

ALERT: The tax rates cited in this article are no longer the current motor vehicle sales tax
or motor vehicle rental tax rates.

May 23, 1984

Dear **:

Thank you for your letter of May 11, 1984. The Postal Service delivered your letter to the IRS by mistake. I hope the delay in our response is not too great an inconvenience.

You present an interesting factual situation whereby one individual (Client) obtains permission to operate out of a licensed automobile dealers premises using the dealers registration number for a monthly fee. The Client would thereby obtain all of the benefits of dealer reassignment and registration privileges without the inconvenience of the requirements such as the office, telephone listing, dealership sign, bond and etc.

The State Department of Highways tells us that such an operation would be in violation of their rules and that the licensed dealer allowing use of the registration number could lose the license. I have forwarded a copy of your letter to them so that they may give you more details.

A somewhat similar situation has been before our Agency before. A used car dealer had allowed a banker to use the dealer number, supposedly because the banker was floor planning the dealers inventory. Highway Department Rules require that on assignment and re-assignment of the Certificate of Title, the dealer number must match exactly the name of the dealership to which the license was issued. Our Administrative Law Judge held that all sales using that dealers license with his permission were sales by the dealership even though the dealer testified that the vehicles were owned by the banker.

If the State Highway Department were to allow a situation as you describe to operate, the Client could indeed avoid payment of the 4% Motor Vehicle Sales Tax on vehicles purchased for resale. We would however, hold both the dealer and the Client jointly and severally liable as sellers for any tax liability. Both would have to keep the required records for each sale of every motor vehicle.

Please feel free to contact me if you have additional questions. You may write or call toll free 1-800-252-5555 from anywhere in Texas or phone 512/475-1931.

Sincerely,

Tom Soto

Tax Policy