Can a retailer that leases (rather than rents) motor vehicles buy repair and replacement parts for those vehicles under a resale certificate?

Subject

Motor Vehicle — Held For Rental Or Lease — Repair And Replacement Parts — Can Be Purchased Under Resale Certificate

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9309L1257B04

Plain-English Summary

A taxpayer wrote to the Comptroller about Rule 3.294, the sales tax rule governing purchases of repair and replacement parts for vehicles held for rental or lease. As written, the rule let a retailer who rents motor vehicles buy repair and replacement parts under a resale certificate (tax-free), but required a retailer who leases vehicles to pay tax on the same kind of parts. The taxpayer asked that section (j)(3) of the rule be amended to allow the resale certificate for leased vehicles too, arguing that the limited sale and use tax act does not distinguish between leased and rented vehicles.

The Comptroller agreed. After reviewing the arguments, the letter concludes the rule should be amended to allow retailers who lease vehicles to purchase repair and replacement parts under a resale certificate, just like retailers who rent vehicles. The letter also addresses two association members who were under audit at the time: no assessment would be made on the repair and replacement parts placed on their leased vehicles.

What This Means For You

Leased and rented vehicles get the same resale-certificate treatment. If your business leases (rather than rents) motor vehicles as part of its operations, this letter indicates that repair and replacement parts placed on those leased vehicles can be purchased under a resale certificate, the same as parts for rented vehicles under Rule 3.294.

This resolved a specific rule gap. The letter describes Rule 3.294, section (j)(3), as having treated rented and leased vehicles differently before this determination — rented-vehicle parts were resale-certificate eligible, leased-vehicle parts were not. The Comptroller's conclusion here is that the rule "should be amended" to eliminate that distinction.

Pending audits were addressed directly. For the two association members who were under audit at the time this letter was written, the Comptroller stated no assessment would be made on repair and replacement parts placed on their leased vehicles — showing this letter had immediate, concrete effect for those taxpayers, not just prospective rule language.

Q&A

Q: Could a retailer that leases motor vehicles previously buy repair and replacement parts under a resale certificate?
A: No. Under Rule 3.294 as it stood, a retailer who rents motor vehicles could purchase repair and replacement parts under a resale certificate, but a retailer who leases vehicles was required to pay tax on its repair and replacement parts.

Q: What did the taxpayer ask the Comptroller to do?
A: The taxpayer asked that section (j)(3) of Rule 3.294 be amended to allow a retailer to give a resale certificate for repair and replacement parts placed on leased vehicles, arguing that the limited sale and use tax act does not distinguish between leased and rented vehicles.

Q: What did the Comptroller conclude?
A: After reviewing the taxpayer's arguments, the Comptroller concluded the rule should be amended to allow retailers leasing vehicles to purchase repair and replacement parts under a resale certificate.

Q: What happened to the two association members who were under audit?
A: The letter states that no assessment would be made on the repair and replacement parts placed on their leased vehicles.

Q: Who signed this letter?
A: Mike Doyle, Director, Tax Administration, signed the letter.

Original ruling text

September 10, 1993

Dear ***:

Recently, you wrote concerning our sales tax rule on the purchase of
repair and replacement parts for lease vehicles. Essentially, Rule 3.294
allows a retailer who rents motor vehicles to purchase repair and
replacement parts under a resale certificate but requires a retailer who
leases vehicles to pay tax on its repair and replacement parts. You
asked that section (j)(3) of the rule be amended to allow a retailer to
give a resale certificate for repair and replacement parts placed on
leased vehicles because the limited sale and use tax act does not
distinguish between leased and rented vehicles.

After reviewing your arguments, I have concluded the rule should be amended
to allow retailers leasing vehicles to purchase repair and replacement
parts under a resale certificate.

As regards the two *** members currently under audit, no assessment
will be made on the repair and replacement parts placed on their leased
vehicles.

I hope this satisfactorily answers yours and **'s concerns.

Sincerely,

Mike Doyle
Director
Tax Administration

NOTE: Previous Accession Number 93070154L.6 and/or 9307154L