Did a Texas lienholder owe motor vehicle sales tax when it repossessed and took title to a vehicle after an interstate carrier defaulted?

Plain-English summary

The Texas Comptroller said a vehicle lienholder did not owe motor vehicle sales tax when it repossessed and took title to vehicles after interstate-carrier borrowers defaulted.

In the described cases, the carriers had applied for certificates of title, but titles were not issued because the purchasers did not complete the process of obtaining apportioned license plates. They also defaulted on their notes.

Repossession was not a retail sale, so the lienholder's acquisition of title was not taxable. The Comptroller said this policy applied whether the lien was recorded on the title or documented in another manner. Any tax due would be recovered from the purchaser.

The letter attributed the policy to an Attorney General opinion but did not identify it.

What this means for you

Vehicle lenders and finance companies

Under this historical policy, taking title through repossession differed from buying the vehicle at retail.

Interstate carriers

Failure to finish apportioned-registration steps did not make the lienholder's later repossession a taxable retail sale, but the letter said tax due could be recovered from the purchaser.

Title departments

The Comptroller did not limit the policy to liens printed on a certificate of title. Other documentation could establish the lien.

Common questions

Q: Did the lienholder owe tax when it took title?

A: No.

Q: Why not?

A: The Comptroller said repossession was not a retail sale.

Q: Did the lien have to appear on the title?

A: No. The policy also covered a lien documented in another manner.

Q: Who remained responsible for tax due?

A: The purchaser, according to the letter.

Citations and references

• An unidentified Texas Attorney General opinion described as the basis for the repossession policy.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9909695L

Original ruling text

September 20, 1999

Via Fax: **

Dear **:

Recently, we spoke concerning the taxability of motor vehicles that had been
financed for interstate carriers and repossessed by COMPANY A.

A situation has occurred from time to time where an interstate carrier applies
for certificate of title but title is not issued due to the failure of the
purchaser to follow through in obtaining apportioned license plates. The
carrier also defaults on the note. The issue is does COMPANY A owe any motor
vehicle sales tax when they (as lienholder) repossess and take title to the
motor vehicle.

A repossession is not a retail sale; thus no motor vehicle sales tax is due if
the lienholder takes title to the unit. This policy is based on an Attorney
General opinion and applies whether the lien was recorded on a certificate of
title or is documented in another manner. Any tax due would be recovered from
the purchaser.

Please feel free to provide this response to COMPANY A or anyone involved in
the title transfer.

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 give me a call.

Sincerely,

Curt Swenson
Tax Policy Division