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Ezel / Tax Rulings / TX
TX 8709L0957B12 Motor Vehicle Tax 1987-09-14

Was a lessor exempt from Texas motor vehicle tax when it leased vehicles to the Federal Land Bank without exempt license plates?

Short answer: No. The Comptroller said the lessor owed Texas motor vehicle sales tax unless the vehicle was leased to a public agency and operated with exempt license plates. Because the Federal Land Bank vehicles would not use exempt plates, the lessor had to pay tax when titling and registering them. The Farm Credit Act of 1971 did not change the result because the tax burden fell on the lessor, not the bank.

Apply this to your situation

This page answers the general question as of 1987. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1987
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a 1987 Texas Comptroller taxpayer-response letter applying the facts and law then in effect. It expressly says different facts could change the opinion. Public-agency classifications, exempt-plate requirements, Farm Credit System law, and motor vehicle tax rules may have changed, and STAR documents may no longer represent current policy even when not marked superseded. Taxpayer-identifying details are redacted. Historical phone numbers and registration procedures may be obsolete. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The lessor had to pay Texas motor vehicle sales tax on vehicles leased to the Federal Land Bank because the vehicles would not be operated with exempt license plates.

The Comptroller described a two-part historical exemption: the lessee had to be a “public agency,” and the vehicle had to be operated with exempt plates. If the plates were not exempt, tax was due.

Texas treated the motor vehicle sales tax as the lessor's responsibility. The letter therefore rejected reliance on the Farm Credit Act of 1971: the burden was imposed on the lessor rather than the Federal Land Bank.

The tax was due when the vehicles were titled and registered in Texas.

What this means for you

Lessors serving government-related entities

The customer's public or federal character did not by itself establish the exemption described here. The vehicle's registration and plate status also mattered.

Contract tax clauses

The ruling assigned the legal tax responsibility to the lessor. A lease's pricing or reimbursement terms would not change who Texas treated as liable under this letter.

Current Farm Credit transactions

This is historical guidance. Confirm the entity's present legal status, the current exempt-plate rules, and who owes the tax before using the same analysis today.

Common questions

Q: Who owed the tax under the letter?
A: The lessor.

Q: When would the public-agency exemption apply?
A: When the lessor leased the vehicle to a public agency and the vehicle operated with exempt license plates.

Q: Why did the Federal Land Bank lease fail?
A: The vehicles would not have exempt plates.

Q: Did the Farm Credit Act eliminate the tax?
A: No. The letter said the Act did not apply because the lessor, not the bank, was responsible for the tax.

Citations and references

  • Farm Credit Act of 1971 — held inapplicable to this lessor-level tax

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN 78774

September 14, 1987

Dear ***:

Thank you for your letter of August 28, 1987, concerning tax on vehicles
leased to the Federal Land Bank.

In Texas, the motor vehicle sales tax is the responsibility of the
lessor.
If the lessor leases a vehicle to a "public agency" and the vehicle is
operated with exempt license plates, no tax is due. However, if the
vehicle
is not operated with exempt license plates, tax is due.

Since the vehicles leased to the Federal Land Bank will not be operated
with
exempt license plates, the lessor is required to pay tax when the
vehicles
are titled and registered in Texas.

The Farm Credit Act of 1971 does not apply in this situation as the tax
is
the responsibility of the lessor, not the Federal Land Bank.

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
1-800-252-5555 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

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