Could an independent Texas dealer buy a new vehicle tax-free for resale and use a resale vehicle as a trade-in?

Plain-English summary

The Texas Comptroller said an independent, non-franchised dealer could not buy a new vehicle tax-free merely because it intended to resell the vehicle.

Only a dealer authorized to sell new vehicles could acquire a new vehicle tax-free for resale, and then only for the make it was franchised to sell. Tax therefore applied when an independent dealer, or a dealer franchised for a different make, bought the new vehicle.

The letter separately addressed a used vehicle the independent dealer had acquired tax-free for resale. Trading that vehicle toward the new vehicle was a taxable use because the dealer was no longer holding it exclusively for resale. If the dealer paid tax on the used vehicle, it could then qualify as a trade-in.

What this means for you

Independent and franchised dealers

The historical resale treatment depended on both authorization to sell new vehicles and the particular make covered by the franchise.

Dealership accountants

Track whether each vehicle was acquired tax-paid or tax-free for resale before applying trade-in treatment.

Common questions

Q: Could an independent dealer buy a new vehicle tax-free for resale?

A: No.

Q: Could a dealer franchised for another make do so?

A: No, according to the letter.

Q: Could a tax-free resale vehicle be traded in?

A: Trading it was a taxable use. The letter allowed trade-in treatment after tax was paid on that vehicle.

Citations and references

• The letter did not identify a statute or administrative rule by 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/9710939L

Original ruling text

October 6, 1997

Dear ****:

Thank you for your request for motor vehicle tax information.

Facts: A non-franchised dealer is purchasing a new vehicle from you for
resale. As we discussed, only dealers authorized to sell new motor vehicles
may acquire a new motor vehicle for resale tax free, and then only the make of
vehicle they are franchised to sell. Motor vehicle tax is due on the purchase
of a new vehicle when purchased by an independent motor vehicle dealer or a
dealer franchised to sell a different make of vehicle, even if the vehicle is
being held exclusively for resale. The non-franchised dealer wishes to use a
vehicle it has acquired for resale as a trade-in on the purchase of the new
vehicle to reduce the taxable value of the new vehicle.

Response: When your customer (the non-franchised dealer) acquires a used
vehicle for resale, it must hold the vehicle exclusively for resale in order to
not incur motor vehicle tax. When your customer uses this vehicle (old
vehicle) as a trade-in on another vehicle (new vehicle) being purchased, your
customer is not holding the old vehicle exclusively for resale and has made a
taxable use. If your customer pays tax on its purchase of the old vehicle,
then the old vehicle is eligible as a trade-in.

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 me at 463-4663. You
may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale Williams
Tax Policy Division