Could a dealer take title tax-free when federal odometer rules required title to a vehicle held for resale?

Plain-English summary

These 1990 Comptroller communications addressed federal Truth in Mileage Act procedures requiring dealers to title certain vehicles acquired by secure power of attorney before wholesale resale.

Texas allowed the dealer to take that required title without motor vehicle sales or use tax when the vehicle was held exclusively for resale and was to be sold to someone other than a Texas retail customer. When possible, the dealer was to identify the buyer or auction on the title application.

Tax applied if the titled vehicle was used as a loaner, delivery vehicle, or for another taxable purpose. The internal memo opposed a broader exemption for every power-of-attorney acquisition because it could enable tax-free business use or improper fair-market-value deductions.

What this means for you

The exception was tied to a specific federal titling requirement and exclusive resale status, not merely possession of a power of attorney.

Common questions

Q: Could the dealer use the vehicle before resale?

A: No. Loaner, delivery, or other taxable use triggered tax.

Q: Did every power-of-attorney acquisition qualify?

A: No. The internal memo rejected that broader approach.

Citations and references

• Federal Truth in Mileage Act of 1986 — identified as the source of the historical titling requirement; no section was cited.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9005L1029E13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller

May 11, 1990

Dear **:

As we discussed, Mr. Swenson's letter of April 23, 1990, is correct.

A dealer may claim exemption from motor vehicle sales tax when the
dealer is required to take title under the Truth in Mileage Act of
1986. I understand title is required when the vehicle has a new con-
forming title and the previous owner has singed a power of attorney.
And the title is only required when the vehicle is not sold to a re-
tail customer in Texas.

However, tax will be assessed on the title vehicle if it is not held
exclusively for resale. In other words, these vehicles should not be
used as loaners, delivery vehicles or for other taxable uses.

If you have any questions or need more information, please call me.
The toll- free number is 1- 800- 531- 5441. The regular number is
512/463-4614. Or you may write me at the Taxability Section of Legal
Division. [(FAX) 512-475-0900]

Sincerely,
Adina Whittemore
Taxability Section
Legal Division

April 23, 1990

Dear **:

Recently we spoke concerning title requirement changes resulting
from the federal Truth in Mileage Act of 1986.

Dealers who are required to take title to a vehicle acquired for
resale, because of the implementation of the Federal Truth in
Mileage Act of 1986 will not be required to pay motor vehicle
sales or use tax on that titling. This will apply to vehicles
which were acquired through a secure power of attorney and which
are titled with a new conforming title document and sold to some-
one other than a Texas retail customer.

When possible the dealer should indicate the name and address of
the party the vehicle is being sold to.

If you have any questions please feel free to call me at 463-4684.

Sincerely,
Curt Swenson
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

BOB BULLOCK
Comptroller

April 26, 1990

The Honorable
xxxxxx
xxxxxx
xxxxxx

Dear xxxxxx:

You are by now aware that dealers will be required to take title
to certain vehicles under the newly implemented Federal Truth in
Mileage Act.

It is my understanding that this titling will only be required
when a dealer acquires a vehicle using a new secure power of at-
torney on a vehicle which is titled with a new conforming title
and is to be resold to someone other than a Texas retail purchas-
er.

Since the motor vehicle tax act imposes sales tax only on a re-
tail sale, the dealer who is required to take title because of
the federal act, to the resale vehicle, will not be subject to
motor vehicle sales tax.

When possible the dealer should indicate on the title applica-
tion the name and address of the party the vehicle is being
sold to.

If you have any questions please feel free to contact this of-
fice. You may call toll free 1-800-252-5555.

Sincerely,
Curt Swenson

MOTOR VEHICLE DEALER TITLES

ISSUE: the recent change in titling procedures required to comply
with the Federal Truth in Mileage Act of 1986 in causing problems.
One of the procedures requires dealers who wholesale vehicles they
acquired by power of attorney to obtain title in their name before
selling it to another dealer.

A dealer does not have to take title to a vehicle acquired by POA
that is sold at retail.

A dealer normally acquires a vehicle by power of attorney when the
person trading-in does not have clear title. In that case the lien
holder has the title and gives the title directly to the dealer
without the owner having the opportunity to assign the title to the
dealer. The dealer will have obtained the owner's power of attor-
ney to sign off the back of the title and apply for title in the
dealers name.

Dealers do not have to pay tax on vehicles purchased for resale but
they also don't have to take title in their name. Applying for ti-
tle generally indicates the vehicle is for personal or business use
rather than for resale and requires that tax be paid. However, we
would not require them to pay tax when taking title to comply with
federal law.

The dealers want to take title to all vehicles acquired by power of
attorney whether to be retailed or wholesaled without paying tax.
If we agree, it would allow and encourage abuse and tax-free acqui-
sition of vehicles. Dealers could simply ask any person trading in
a car to sign the POA rather than the title if they liked the vehi-
cle. They could then take title tax free. They could also use the
vehicle as a Fair Market Value Deduction to reduce the tax due on
other vehicles titled in their name for business purposes such as
rental and lease vehicles.

We have proposed to dealers that they can take title to vehicles ac-
quired by POA if they can name the dealer who is buying the vehicle
or name the auction through which it will be sold. They know which
dealer will buy it if it goes to auction. They also admit that they
may in fact sell it at retail.

QUESTION: Should we allow dealers to acquire tax-free any vehicle
acquired by Power of Attorney?