How did Texas treat lease acquisition fees, roadside assistance, credit-card rebates, and resale-inventory vehicles used as trade-ins?

Plain-English summary

The Texas Comptroller answered four separate motor vehicle tax questions.

First, a lease acquisition fee paid by the lessee to the lessor or lienholder for preparing lease documents was not part of the vehicle's taxable sales price. The lessor's vehicle purchase was the taxable transaction, and the fee was neither paid to nor charged by the vehicle seller.

Second, buying a roadside-assistance program covering battery jumps, door unlocking, flat-tire changes, or towing was not subject to motor vehicle sales tax or limited sales tax. The services occurred after the vehicle sale and were not among the services specifically taxed under the limited-sales-tax chapter.

Third, money supplied by an unrelated, non-captive credit-card company toward a vehicle purchase was taxable consideration. Only a rebate from the seller or a manufacturer-related card qualified as a nontaxable rebate under the letter.

Fourth, a used-vehicle dealer or wholesaler could not take vehicles from tax-free resale inventory and use them as trade-ins to reduce tax on a new vehicle without first paying motor vehicle tax on those inventory vehicles. Removing them from exclusive resale use was a taxable use.

What this means for you

Motor vehicle dealers and wholesalers

Inventory held tax-free for resale lost that exclusive status when used as trade-in consideration. The letter required tax on the removed inventory before allowing it to reduce the new vehicle's taxable value.

Vehicle leasing companies

A document-preparation fee paid to the lessor or lienholder was outside the vehicle seller's taxable sales price on the facts presented.

Dealership accountants

Trace who funded a rebate. The Comptroller distinguished seller or manufacturer-related rebates from payments by an unrelated credit-card company.

Common questions

Q: Was the lease acquisition fee taxable?

A: No, on the described facts.

Q: Was the roadside-assistance program taxable?

A: No.

Q: Was an unrelated credit-card company's contribution taxable?

A: Yes, as part of the vehicle's sales price.

Q: Could resale inventory be used immediately as a trade-in?

A: Not without first paying motor vehicle tax on the vehicles removed from inventory.

Citations and references

• Texas Tax Code limited-sales-tax chapter; the letter did not state a chapter or 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/9907553L

Original ruling text

July 14, 1999

Dear Ms. **:

Thank you for your letter concerning the taxability of lease acquisition fees.
I've responded to that issue as well as several other issues.

It is my understanding that a lease acquisition fee is paid by a lessee to a
lessor and/or lienholder for completing lease documents. Because it is the
lessor's purchase of the motor vehicle that is the taxable transaction, and
this fee is not paid to or charged by the seller, the charge is not part of the
taxable sales price of the motor vehicle and is not subject to motor vehicle
sales tax.

We also recently discussed the taxability of the sale of a Roadside Assistance
Program. Roadside Assistance performs such services as jump-starting a weak
battery, unlocking a door, changing a flat tire, or providing tow service.
The purchase of the service is not subject to motor vehicle sales tax or
limited sales tax. Motor vehicle sales tax is not due because the service is
performed after the sale. Limited sales tax is not due because these
activities are not a service specifically taxed under that chapter of the Tax
Code.

We have also discussed whether a "rebate" provided by a credit card company
that is not related to a manufacturer (a non-captive card) and applied to the
purchase price of a motor vehicle is part of the taxable price of the vehicle.
The amount of consideration provided by the non-captive credit card company is
part of the taxable sales price. Only a rebate from the seller or from a
manufacturer-related card (such as the GM Card) qualifies as a nontaxable
rebate.

The final issue is tax responsibilities of the following situation: A used
motor vehicle dealer or a wholesaler purchases a new motor vehicle and desires
to "trade-in" one or more motor vehicles that are in the dealer's resale
inventory in order to reduce the amount of motor vehicle sales tax paid on the
new motor vehicle. The "trade-in" vehicles are not titled to the buyer of the
new motor vehicle, they are only re-assigned, as they are in the inventory of
the buyer. The question is if these "trade-ins" may be used as deductions in
computing the tax due on the new motor vehicle purchase.

The used motor vehicle dealer or wholesaler has made a taxable use of these
"trade-in" vehicles because they are no longer being held exclusively for
resale. Thus, the trade-in's may not be used to reduce the taxable value of
the new motor vehicle unless the used vehicle dealer or wholesaler first pays
motor vehicle tax on the used vehicles removed from inventory.

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

If you have any questions, please do not hesitate to give me a call.

Sincerely,

Curt Swenson
Tax Policy Division