Did a corporate stock sale or merger trigger new Texas motor vehicle tax on the corporation's trailers?

Plain-English summary

A sale of the corporation's stock did not itself change ownership of the trailers, and a transfer of other vehicles to that corporation pursuant to a merger caused no additional tax under the facts presented.

The first corporation owned trailers used in a rental business. It had paid a stated five-percent historical tax when acquiring new equipment, collected motor vehicle rental tax, and used a reimbursement deduction until it recovered the acquisition tax.

The proposed buyer would acquire the corporation's stock while leaving the corporation and its name intact. The Comptroller said the corporation remained the vehicle owner despite the shareholder change. It could continue the reimbursement process, and the trailers did not need new registration or another tax payment merely because the stockholders changed.

A second corporation owned vehicles used in leases lasting more than 180 days. Those vehicles and their debt would move into the surviving corporation through a merger. The Comptroller said no additional tax was due on a transfer pursuant to a merger, citing Rule 3.64. Because no tax was due, there was no tax basis to calculate on re-registration.

What this means for you

Stock purchases

Buying shares is different from buying the corporation's vehicles. Under this letter, the same legal entity continued to own the trailers after its shareholders changed.

Corporate mergers

The no-additional-tax answer depended on a transfer pursuant to a merger. An asset sale, distribution, conversion, or transfer outside a qualifying merger was not decided.

Historical rental-tax accounting

The letter's five-percent acquisition tax, more-than-180-day lease treatment, and reimbursement deduction are period-specific. Confirm current rules before modeling a transaction on them.

Common questions

Q: Could the corporation continue its unrecovered reimbursement after the stock sale?
A: Yes, because the corporation still owned the vehicles.

Q: Did new shareholders have to re-register the trailers?
A: No. A shareholder change did not itself create a new vehicle owner.

Q: Was tax due when the second corporation's vehicles moved in the merger?
A: No, if the vehicles were transferred pursuant to the merger.

Q: Did the letter address an asset purchase?
A: No.

Citations and references

• Texas Comptroller Rule 3.64 — cited for no additional tax on vehicle transfers pursuant to a merger

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8709L0959F13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN 78774

September 2, 1987

Dear ***:

I have received your letter of August 8, 1987, concerning motor vehicle
rental tax.

I have restated your situation and questions below.

My client is in the process of finding a buyer for his business which is
a
corporation. The sales would entail purchase of stock of the corporation
with the corporation and the corporate name remaining intact.

He owns many trailers on which he collects motor vehicle rental tax. In
addition, on purchase of new equipment he pays the 5% tax at the time of
purchase. 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 the
equipment.

Question 1:
Upon sale of the business, would the new owner be able to continue this
policy of reimbursement for the amounts of tax paid that had yet as not
been fully reimbursed?

Answer:
If the ownership of the vehicles remains the same (the corporation), the
corporation may continue to reimburse itself for the tax paid at regis-
tration. A change of stockholders will not in itself change the owner-
ship of vehicles owned by the corporation.

Question 2:
Would the new owner have to re-register the equipment and again pay the
tax at the time the business changed hands?

Answer:
In this situation, there is no new owner of the vehicles, only new
stockholders in the corporation.

The client has another small business (also a corporation) involved in
the same line of business except that all the trailers are leased (more
than 180 days) and as such no motor vehicle rental tax is collected.
This corporation would be merged with the existing corporation and all
vehicles (and corresponding debt owed on the vehicles) would be
transferred to the existing corporation.

Question 3:
As these are two different corporations being merged into one, would tax
be due on the re-registration into the existing corporate name of the
leased vehicles from the corporation that is being dissolved?

Answer:
If the vehicles are transferred pursuant to a merger, no additional tax
will be due (see enclosed Rule 3.64).

Question 4:
What would be the basis for figuring the tax (if any) due on the
re-registration?

Answer:
Non-applicable.

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 Administration Division

Sincerely,
Adina Whittemore
Tax Policy Division