Who owed Texas use tax on an Oklahoma-leased vehicle operated in Texas, and what happened if the lessee later exercised the purchase option?

Plain-English summary

The Texas Comptroller said the operator of a pickup leased in Oklahoma and operated in Texas owed Texas motor vehicle use tax.

The tax was calculated on the out-of-state lessor's purchase price. The lease contract itself was not taxed, and no refund was available if the vehicle was later returned to the lessor.

The letter treated the contract as an operating lease with an end-of-term purchase option. Exercising the option created another taxable transaction. Because the lessee had been responsible for the initial Texas use tax, that amount was credited against motor vehicle sales tax due on the buyout.

The quoted 6 1/4% use-tax rate is historical.

What this means for you

Vehicle lessees

Under the historical rule, the Texas operator—not necessarily the title owner—was responsible for the initial use tax.

Multistate lessors

The tax base was the lessor's out-of-state purchase price, not the lease payments.

Fleet accountants

Keep proof of Texas use tax paid so it can support any allowed credit on a later purchase option.

Common questions

Q: Who owed the initial use tax?

A: The Texas operator.

Q: Was the lease contract taxed?

A: No.

Q: Was there a refund if the vehicle was returned?

A: No.

Q: Was the buyout taxable?

A: Yes, with credit for the initial Texas use tax under the letter.

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/9711061L

Original ruling text

November 17, 1997

RE: Sales tax

Dear **:

Thank you for your recent email concerning motor vehicle taxes imposed on the
Dodge pick-up leased in Oklahoma.

The Texas tax law imposes a 6 1/4% use tax on any vehicle acquired outside this
state and then operated in Texas. The tax is the operator's responsibility.
The law provides that the tax is calculated on the purchase price that occurred
in the other state. In this case it is calculated on the lessor's purchase
price. The lease contract itself is not subject to tax in Texas. No refund is
available if the unit is later returned to the lessor.

My staff tells me that most lease contracts they see are actually operating
leases with an option to purchase at the end of the contract. It appears that
you have such a contract. If the option is exercised, another transaction has
occurred and tax is due on that transaction. However in your case, because the
initial use tax paid Texas was your responsibility, you will receive credit for
that amount toward any motor vehicle sales tax due if you exercise your option
and purchase the vehicle.

If you have any questions, please contact Curt Swenson in my Tax Policy
Division. Curt may be reached through our email address of
. He may also be reached by calling 1-800-531-5441,
extension 3-4684.

Sincerely,
JOHN SHARP
Comptroller of Public Accounts