Does Texas motor vehicle tax apply when a parent transfers vehicles to a newly incorporated subsidiary for stock or subject to a lien?

Plain-English summary

The Texas Comptroller gave four rules for vehicle transfers from an existing corporation.

For a newly formed subsidiary with identical ownership:

• No motor vehicle sales tax was due when the subsidiary gave the parent only stock.
• Sales or use tax was due when the subsidiary gave other consideration, including assuming a lien on the vehicle.

For a separate independent corporation, consideration also made the vehicle transfer taxable. The 1993 letter originally applied $10 gift tax when an independent corporation paid nothing, but that result is superseded by the 2009 law restricting motor vehicle gifts.

What this means for you

Parent companies forming subsidiaries

Document the initial incorporation, stock issuance, and identical ownership. Any cash, lien assumption, or other consideration can change the result.

Fleet managers and title teams

Do not treat "no cash" as "no consideration." Taking property subject to an assumed vehicle lien was expressly taxable in this letter.

Corporate tax professionals

Do not use the old independent-corporation $10 gift answer. STAR expressly superseded that item after House Bill 2654.

Common questions

Q: Is parent stock treated as taxable consideration?

A: The letter said no for the initial incorporation of the subsidiary on the stated facts.

Q: Is assuming the vehicle lien consideration?

A: Yes, and the letter imposed sales or use tax.

Q: Can an independent corporation still use the $10 result?

A: No. STAR marks that gift-tax item superseded.

Citations and references

• Tex. Tax Code ch. 152
• Texas House Bill 2654, 81st Legislature (effective September 1, 2009)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9312037L

Original ruling text

STAR SUPERSEDED INFORMATION
Accession No. - 9312l1282G07
Supersede type - partial
Document superseded on - 12/20/2011
Issue(s) that caused the document to be superseded - gift tax on
transfer between corporations (item #3)
Reason(s) - Statutory change - House Bill 2654, 81st Regular
Legislative Session amended Texas Tax Code Section 152 to limit
the motor vehicle gift tax to a limited group of individuals or
entities. (Effective Sept. 1, 2009)

December 28, 1993

Dear **:

This is in response to your letter dated December 15, 1993, regarding motor
vehicle tax when an existing corporation transfers vehicles to a newly formed
corporation. The newly formed corporation is formed by the issuance of stock to
all existing stockholders and no consideration is exchanged. Ownership is
identical in both corporations.

When a motor vehicle is transferred from an existing corporation to a
SUBSIDIARY corporation upon the initial incorporation of the subsidiary, the
following guidelines apply:

1. If no consideration is paid by the subsidiary to the parent corporation other
   than stock, no sales tax is due.

2. If a consideration (including a lien assumption) is paid to the parent
   corporation, motor vehicle sales or use tax is due.

When a motor vehicle is transferred from an existing corporation to another
INDEPENDENT corporation (newly formed or existing) the following guidelines
apply:

3. If no consideration is paid for the vehicle, the $10 gift tax applies.

4. If a consideration (including a lien assumption) is paid for the motor vehicle,
   sales tax is due.

If you have any questions or need more information, please write or call me
toll free at 1-800-531-5441, extension 50330, or 512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division