Did a lessee's residual-value obligation or purchase option turn the vehicle leases into conditional sales?

Plain-English summary

The Texas Tax Policy Division rejected the claim that two vehicle leases were conditional sales under Rule 3.79's must-purchase element.

Both leases made the lessee responsible for the difference between the vehicle's eventual sale price and a predetermined contract amount. One required the lessee to act as sales agent; the other allowed the lessee either to act as sales agent or exercise a purchase option.

The letter said acting as sales agent or guaranteeing a minimum sale price was not equivalent to being required to purchase the vehicle.

What this means for you

Vehicle lessors and lessees

A residual-value obligation did not automatically create a must-purchase clause under the historical analysis.

Fleet accountants

The actual end-of-term rights and obligations mattered more than the economic risk alone.

Common questions

Q: Did the minimum resale-price responsibility create a conditional sale?

A: No.

Q: Did an option to purchase equal a requirement to purchase?

A: No, under the lease described.

Citations and references

• 34 Tex. Admin. Code Rule 3.79 — cited for the must-purchase element of conditional-sale treatment.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9512908L

Original ruling text

December 7, 1995

Dear **:

Thank you for your letter concerning the transfer of motor vehicles from
COMPANY A and COMPANY B leasing companies to ABC CORP.

I disagree with your contention that these lease contracts constitute sale
agreements based on the "must purchase" element of Administrative Rule 3.79.

Basically the two leases are similar in that the lessee is responsible for the
difference in an amount the units are sold for at the conclusion of the lease
and a predetermined amount provided for in the lease contract. The COMPANY A
lease appears to provide that the lessee merely acts as sales agent while the
COMPANY B lease provides that the lessee may act as sales agent or may exercise
an option to purchase the vehicle themselves for the predetermined amount.
Being required to act as a sales agent or being responsible for a minimum sales
price, is not analogous to being required to purchase the units.

This opinion is based on the facts presented. If there are additional or
different facts, opinion may change. If you have any questions, please don't
hesitate to write the Tax Policy Division or call me toll free 1-800-531-5441,
extension 34684.

Sincerely,

Curt Swenson
Tax Policy Division