Could a seller-financing dealer claim a Texas tax credit after selling a vehicle note to a bank and later repurchasing it under full recourse?

Plain-English summary

The Texas Comptroller denied a tax credit when a seller-financing vehicle dealer repurchased a note from a bank under a full-recourse agreement.

The dealer had financed the vehicle sale and then sold the note to the bank after all tax then due on the vehicle sale had been paid. Under the Tax Code rule described in the letter, selling the note made the remainder of the tax due.

The later note buyback did not reverse that event. The letter said no tax-credit provision applied.

What this means for you

Motor vehicle dealers and auto finance companies

Selling the receivable accelerated the remaining tax under the historical rule, while recourse risk stayed with the dealer without a later tax credit.

Banks

The note's full-recourse structure did not preserve a dealer credit if the bank put the note back.

Dealership accountants

Model the tax cost separately from the economics of note recourse and repurchase.

Common questions

Q: When did the remaining tax become due?

A: When the dealer sold the note to the bank.

Q: Did buying the note back create a tax credit?

A: No.

Citations and references

• The letter referred to the Texas Tax Code note-sale rule without identifying a section number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9710441L

Original ruling text

October 21, 1997

Dear Mr. **:

Thank you for your letter requesting motor vehicle tax information.

Facts: A motor vehicle dealer sells a vehicle and finances the sale. Dealer
sells the note to a bank (under a full recourse agreement between the bank and
the dealer). Before the note is sold to the bank, all the motor vehicle sales
tax due on the sale of the auto has been paid. You ask if the dealer may take
a tax credit when it is required to "buy back" the note from the bank.

Response: The Tax Code provides that at the point the dealer sells the note,
the remainder of the tax becomes due. If the dealer later buys back the note,
there is no provision for a tax credit.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion could change.

If you have any questions, please do not hesitate to call one of our tax
specialists toll free at 1-800-252-1382. The direct number is 512/463-4600.
You may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Policy Division