Did Texas impose more tax when a tax-paid vehicle was re-leased, and what happened when an out-of-state leased vehicle was brought into Texas?

Plain-English summary

The Texas Comptroller gave different results for a vehicle already taxed in Texas and one previously leased outside Texas.

For the Texas vehicle, re-leasing after the earlier lease expired caused no additional motor vehicle sales or use tax. Texas taxed the lessor's purchase rather than the lease contract, and the purchase tax had already been paid.

For the out-of-state vehicle brought into Texas for public-highway use, motor vehicle use tax applied to the lessor's purchase price. The 1997 letter quoted a 6 1/4% rate and allowed credit for sales tax paid to another state.

A fair market value deduction could apply, but the retired vehicle had to have been titled in Texas to the lessor. The lease contract itself was not taxed.

What this means for you

Vehicle leasing companies

Re-leasing did not create another tax where the lessor's original Texas purchase was already tax-paid.

Multistate lessors

Bringing an out-of-state fleet vehicle into Texas for highway use triggered the separate use-tax analysis.

Fleet accountants

Retain original purchase tax, other-state tax, Texas title, and retired-vehicle records.

Common questions

Q: Was a Texas tax-paid vehicle taxed again when re-leased?

A: No.

Q: Was an out-of-state vehicle taxed when brought into Texas?

A: Yes, on the lessor's purchase price under the letter.

Q: Was credit allowed?

A: Yes, for sales tax paid to another state.

Q: What did the fair-market-value deduction require?

A: The retired vehicle had to be titled in Texas to the lessor.

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/9711080L

Original ruling text

November 26, 1997

Dear***:

Thank you for your inquiry concerning motor vehicle sales and use tax imposed
on motor vehicles leased in Texas.

The first question concerned the release of vehicles. In Texas it is the
lessor's purchase and not the lease contract that is subject to motor vehicle
sales tax. No additional motor vehicle sales or use tax is due on the release
of a unit that was previously tax paid in Texas.

The second question involved a motor vehicle that was previously leased out of
state and then is released in Texas. The vehicle acquired outside of this
state and brought into Texas for use upon the public highway is subject to
motor vehicle use tax. The tax rate is 6 1/4% (compliment to the sales tax)
and is based on the lessors purchase price. Credit is allowed for sales tax
paid to another state. Fair market value deduction may be applied to this
vehicle. The retired vehicle must have been titled in Texas to the lessor.
The lease contract is not subject to motor vehicle tax.

This opinion is based on the facts presented. Additional or different facts
could change the opinion.

If you have any questions please give me a call.

Sincerely,

Curt Swenson
Tax Policy Division