Who owed Texas use tax on a vehicle bought outside Texas and leased for use in Texas, and what happened at buyout?

Plain-English summary

The Texas Tax Policy Division said the operator was responsible for complementary use tax when a vehicle purchased outside Texas was brought into Texas for use, regardless of who owned it.

The tax base was the owner's purchase price, and Texas allowed credit for similar tax legally paid to another state. The lease transaction itself was not taxed.

If the lessee later bought the vehicle at the end of an operating lease, that buyout was a second taxable sale measured by the consideration paid to obtain the vehicle.

What this means for you

Vehicle lessors, lessees, and fleet operators

Out-of-state acquisition did not eliminate Texas tax when the vehicle was brought into the state for use.

Fleet accountants

Track the owner's purchase price, legally paid other-state tax, and any later buyout as separate facts.

Common questions

Q: Who owed the use tax?

A: The vehicle operator.

Q: Were lease payments taxed?

A: No.

Q: Was the end-of-lease purchase taxable?

A: Yes, as a second sale.

Citations and references

• The letter discussed Texas Tax Code sales and use tax rules without identifying section numbers.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9608626L

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, TEXAS 78774

August 21, 1996

Dear ***:

The Texas Department of Transportation forwarded to this office your letter concerning tax imposed on a leased vehicle.

The Texas Tax Code imposes motor vehicle sales tax on the lessor's purchase transaction when a vehicle is purchased in Texas to lease. The tax is based on the lessor's purchase price. The tax rate is 6 1/4%. The lease transaction is not subject to tax.

The Tax Code imposes a complimentary use tax on a vehicle that is purchased outside that state but brought into this state for use. Regardless of the owner of the vehicle, the use tax is the responsibility of the operator. Again, the lease transaction is not subject to tax. Like the sales tax, this tax is also based on the owner's purchase price. Credit is

allowed for similar tax legally paid to another state.

If the lessee purchases the vehicle at the end of a operating lease, a second taxable sale transaction has occurred and tax is due based on the consideration paid in order to take possession of the vehicle.

If you have any questions please call one of tax specialist at 1-800-252-1382, toll free nationwide.

Sincerely,

Curt Swenson

Tax Policy Division