How did Texas tax an intermediary's services and the vehicle purchases, leases, rentals, and resales in a leasing company's exchange structure?

Plain-English summary

The Texas Comptroller addressed a motor vehicle leasing company's use of an intermediary agent in a transaction described as a like-kind exchange.

The intermediary only received, managed, and distributed the money from vehicle purchases and sales. The leasing company remained the identified buyer and seller, and title passed directly between the dealers, the leasing company, and later retail purchasers. On those facts, the intermediary's services were not taxable.

The underlying vehicle transactions had separate results:

• A retail sale of a retired vehicle was taxable.
• A sale to a licensed Texas dealer for resale was not taxable if the leasing company obtained a resale certificate.
• Buying a vehicle to lease was subject to motor vehicle sales tax, while the lease itself was not taxed.
• Providing a vehicle under a single contract of 180 days or less was a rental, with tax collected on rental receipts; a vehicle bought for rental could be bought tax-deferred.

The letter also allocated title-transfer and tax responsibilities differently depending on whether the leasing company was required to hold a dealer license.

What this means for you

Vehicle leasing companies

Using a funds intermediary did not change the company's status as vehicle buyer and seller. Tax consequences still followed each acquisition, lease, rental, and resale.

Motor vehicle dealers

Retail purchasers and licensed-dealer resales received different treatment. The letter required a resale certificate for the dealer-resale transaction.

Exchange intermediaries

The nontaxable-services conclusion was limited to receiving, managing, and distributing funds. Additional activities could produce a different result.

Common questions

Q: Were the intermediary's services taxable?

A: No, so long as its activities remained limited to the funds functions described in the letter.

Q: Was the leasing company's retail sale of a retired vehicle taxable?

A: Yes.

Q: What if the buyer was a licensed Texas dealer purchasing for resale?

A: The sale was not taxable, and the seller should obtain a resale certificate.

Q: Did the lease itself bear motor vehicle tax?

A: No. The letter taxed the purchase of a vehicle for leasing instead.

Citations and references

• Texas Transportation Code dealer-licensing provisions; the letter did not identify a 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/9910750L

Original ruling text

October 6, 1999

Dear Ms. **:

Thank you for your letter concerning tax implication of a "Like-Kind Exchange"
transaction.

In this situation your client, a motor vehicle leasing company, uses an
Intermediary agent to purchase and sell it's motor vehicles. The Intermediary's
involvement is limited to receipt, management and distribution of funds
obtained from the sale and purchase of motor vehicles. Your client is
identified as the motor vehicle purchaser and seller. Title to the motor
vehicles pass directly from a selling dealer to your client and then upon it's
subsequent sale after being retired from lease service, from your client to the
purchaser.

You first asked if the services provided by the Intermediary are taxable. So
long as the Intermediaries activities are limited to that described above,
these services are not taxable.

The sale of the motor vehicles when sold to a retail purchaser is taxable. If
you client is required to hold a motor vehicle dealer license under the
Transportation Code, your client would be required to collect the appropriate
tax and remit that amount to the local County Tax Assessor-Collector at the
time of title transfer. An agent of a selling dealer has the same tax
collection and remittance responsibility. If your client is not a dealer,
their responsibility is limited to providing the purchaser with all documents
necessary to transfer title to the vehicle and submit the tax, including
providing a title application/tax statement.

The sale of the motor vehicles to a licensed Texas dealer for resale is not
subject to tax. A resale certificate should be obtained from the purchasing
dealer.

The purchase of motor vehicles to lease is subject to motor vehicle sales tax.
The lease itself is not subject to tax. No resale certificate may be used to
acquire the vehicle. If your client is engaged in providing motor vehicles
under single contracts that do not exceed 180 days, a "rental" has occurred and
tax should be collected by your client on the rental receipts. Vehicles
purchased for rental may be purchased tax deferred.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call me at 1-800-531, extension 3-4684, toll free.

Sincerely,

Curt Swenson
Tax Policy Division