Was a five-year truck sale-leaseback treated as a taxable vehicle sale or a financing arrangement?

Plain-English summary

The Texas Tax Administration Division treated the company's transfer of trucks to a financial institution and five-year leaseback as a financing arrangement rather than a taxable motor vehicle sale.

No tax was due when title was registered to the financial institution for security. The institution was instructed to state on the affidavit that the transfer was a "change of title for security purposes - sale/lease back."

When the trucks were later sold, tax applied to the selling price. The letter also said any rentals by the company were taxable.

What this means for you

Truck fleet owners and equipment finance companies

The historical result depended on financing substance and security-title documentation.

Corporate accountants and lessors

Later disposition or actual rental was a separate taxable event under the letter.

Common questions

Q: Was tax due at the sale-leaseback title transfer?

A: No.

Q: Was tax due when the trucks were later sold?

A: Yes.

Citations and references

• The letter did not identify a statute or administrative rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9201126L

Original ruling text

January 27, 1992

Dear **:

On January 13, 1992, you wrote concerning questions you had about a company
refinancing its lease. Without restating the letter in its entirety, the
company was going to transfer its trucks to a financial institution which would
in turn lease them back to the company over a five year period. At the end of
the period, the company would sell the trucks and pay off any remaining amounts
owed the financing company. Both parties will treat the transaction as a
financing arrangement for federal tax purposes.

You wanted to know if any motor vehicle sales tax would be owed on these
transactions. Based on the facts set out in your letter, the answer is "no."
Our office considers these financing transactions and not subject to the motor
vehicle sales tax.

When the vehicles are registered with the tax assessor-collector in Texas, no
tax should be paid. The financing institution should state on their affidavits
that it is "a change of title for security purposes - sale/lease back."

At the end of the transaction, when the vehicles are sold, tax should be
collected on the selling price. And, of course, any rentals by the company
would be subject to tax.

I hope this satisfactorily answers your questions.

Sincerely,

Wade Anderson
Assistant Director Tax Administration

cc: Lucy Glover, Manager Tax Administration