Could a vehicle-rental business preserve or transfer unreimbursed motor vehicle tax when it sold its assets and liquidated?

Plain-English summary

A rental-vehicle company could not preserve, transfer, or repurpose about $25,000 of unreimbursed motor vehicle tax when it sold its assets and liquidated.

The company historically paid a stated five-percent motor vehicle tax when buying vehicles. As it collected motor vehicle rental tax, it claimed reimbursement deductions until recovering the acquisition tax. Liquidation would end the rental receipts available for further reimbursement, so the remaining amount would be lost.

The Comptroller said the balance was not a tax credit. It represented tax that was due and properly paid. It therefore could not offset sales tax, franchise tax, motor vehicle tax, an audit assessment, or liability tied to another fleet vehicle.

The letter contrasted an alternative election: if the company had registered rental vehicles without paying acquisition tax, it would have established a minimum tax liability equal to the county-office tax, payable on liquidation.

What this means for you

Rental-business asset sales

Under this historical system, ending rental operations could cut off the stream of rental-tax receipts needed for reimbursement.

Claimed tax “credits”

An unrecovered reimbursement balance was not a freely transferable credit. The letter rejected both cross-tax and vehicle-to-vehicle offsets.

Transaction planning

The result involved an asset sale followed by liquidation, not a stock sale in which the corporation continued. The distinction was central to the answer.

Common questions

Q: How large was the unreimbursed balance?
A: Approximately $25,000.

Q: Could it offset a later audit liability?
A: No.

Q: Could one vehicle's balance offset tax due on another vehicle?
A: No.

Q: Why was there no refund or transferable credit?
A: The Comptroller treated the amount as tax due and properly paid.

Citations and references

• Texas Tax Code § 152.046(b) — reimbursement provision did not allow transfer
• Texas Tax Code § 152.026(c) — minimum tax liability for rental vehicles registered tax-free
• Texas Tax Code § 152.046(a) — payment of the minimum tax liability

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8709L0830A01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE 0F TEXAS
AUSTIN, 78774

September 3, 1987

Dear **:

Thank you for your letter of August 8, 1987, concerning a client who
rents
motor vehicles.

I have restated your situation and questions below with our answers.

I'm enclosing the Motor Vehicle Sales Use Tax Statute.

Situation:

My client is considering the sale of his business. He owns many
vehicles on which he collects Motor Vehicle Rental Tax. It has
been his practice over the years to pay the 5% Motor Vehicle tax at
the time of purchasing his vehicles. As the equipment is rented
out and tax collected on the rentals), he takes a reimbursement
deduction on his Texas Motor Vehicle Rental Tax Return up to the
amount of tax he paid on purchase of equipment from the rental tax
collected. Currently, no, client has an unreimbursed balance of
approximately $25,000.

Question #1: Upon sale of the business and liquidation of the
assets, would this unreimbursed amount be lost forever to him?
(The Corporation is selling assets and the proceeds are being
liquidated to him; thus he is not selling stock.)

Yes, he would no longer have rental receipts tax available for
reimbursement. If he had elected to not pay the tax when he titled and
registered the vehicles, he would have established a "minimum tax
liability"
which is equal to the tax that would have been paid to the county tax
office. This minimum tax liability would have been due when he
liquidated the
business.

Question #2: Can this unreimbursed amount be used to offset any
ether tax, including but not limited to sales, franchise, and
motor vehicle, that may be due in the future in the event of a tax
liability arising from an audit?

No, the unreimbursed amount is not a credit, but represents tax due and
properly paid.

Question #3: To some extent this question relates to
Question #2. Is the unreimbursed tax applicable only to possible
future liability that might arise to specific vehicle, or can it
be applied to any vehicle in the fleet? For example: Unit A has
unreimbursed Motor Vehicle tax due to my client of $100 and there
is no unreimbursed tax due on Unit B. If a future audit reveals
that an additional $50 tax is due on Unit 8, can the $50 be
offset from the $100 balance of Unit A?

No, as previously stated, this amount represents tax due and properly
paid.
It is not a credit, and may not be used to offset other tax liability.

Please note the following sections in the statute I'm enclosing.

Sec. 152.046(b) reimbursement provision does not allow a transfer of
the credit.

Sec. 152.026(c) imposes a minimum tax liability on vehicles
registered tax free for rental.

Sec. 152.046(a) - provides for the payment of the minimum tax
liability.

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 more information, please call me at
1-900-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
Adina Whittemore
Tax Policy Division