Is additional Texas motor vehicle tax due when an expired operating lease is replaced by another lease of the same vehicle?

Plain-English summary

The Texas Comptroller said no additional motor vehicle sales tax was due when an operating lease expired and the same lessor entered a second operating lease for the same vehicle.

The result did not depend on retaining the same lessee. The letter said the vehicle could be leased to a different customer without new tax because the lessor had not made another taxable retail purchase of the vehicle.

Other portions of the 1997 letter are partially superseded. STAR identifies the discussion of dealer tax-payment advertising and related lessors' fair market value deductions as changed by House Bill 2424 effective September 1, 2003. Those old positions are not summarized as current rules here.

What this means for you

Vehicle leasing companies

Extending use through a new operating lease did not itself create another acquisition tax for the lessor in this letter. Preserve records showing continuous ownership and the absence of a new retail sale.

Fleet accountants

Do not mix the surviving re-lease answer with the superseded fair-market-value discussion elsewhere in the source.

Common questions

Q: Must the second lease use the same customer?

A: No. The letter said the same vehicle could be leased to a different lessee without additional tax.

Q: Why was no new tax due?

A: The lessor did not make another retail purchase of the vehicle.

Q: Are the letter's deduction and advertising positions still reliable?

A: No. STAR expressly marks those issues superseded by the 2003 statutory change.

Citations and references

• Tex. Tax Code §§ 111.016, 152.002(c)
• Texas House Bill 2424 (effective September 1, 2003)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9710070L

Original ruling text

STAR SUPERSEDED INFORMATION
Accession No.(s):
Supersede type: Partial
Document superseded on: August 22, 2003
Issue(s) that caused the document to be superseded: Dealer advertising to pay
purchaser's tax liability and related lessors use of fair market value
deductions.
Reason(s): Statutory change (HB 2424 effective 9/1/03).

October 8, 1997

Dear***:

Thank you for your letters concerning eligible fair market value deductions,
certain promotions and the re-lease of motor vehicles.

The first issue is whether or not fair market value deduction "credits" are
transferable? I do not believe the legislature intended for the deduction to
be transferable. The intent demonstrated in Section 152.002(c) of the Tax
Code, provides that the person eligible for the deduction must be the title
owner to both the replacement vehicle and the replaced vehicle. If the
deductions were transferable, the two vehicles would have different title
owners.

Similarly, the lessee's or lease facilitator's own fair market value deductions
on a leasing company's purchase transaction are not eligible deductions. Only
the lessor/purchaser's retired vehicles could be used as deductions.

Although Ch. 151 contains a provision prohibiting the retailer from indicating
that he will pay the purchaser's tax liability, there is no similar provision
in the motor vehicle act. Lessors have a different situation. As you are
aware, it is the lessor's purchase that is the taxable transaction. Any tax
indicated to their lessee must be shown as a reimbursement expense. Otherwise,
an unjust enrichment situation could arise under Section 111.016 of the Tax
Code. There is no prohibition in the Tax Code for a lessor advertising that
they will use their fair market value deductions as long as Section 111.016 is
not violated.

The last situation involves the releasing of motor vehicles. The situation is
that an operating lease contract has expired and the lessee desires to enter
into a new contract to lease the same vehicle from the same lessor under a
second operating lease. Because no additional retail sale has occurred, no
additional motor vehicle sales tax is incurred. The vehicle could in fact be
leased to a different lessee without additional tax becoming due.

I apologize for the delay in responding. Please give me a call if you have any
questions. My phone number is 463-4684.

Sincerely,

Curt Swenson
Tax Policy Division