How did Texas tax long-term leases and purchases of ready-mix trucks, garbage trucks, and truck-mounted mixer equipment?

Plain-English summary

The Texas Comptroller addressed several taxes and procedures for a lessor of ready-mix trucks, garbage trucks, and mobile-mix plants.

For ready-mix and garbage trucks leased under a single contract exceeding 180 days, the lessor's purchase was subject to motor vehicle sales tax. The lessor paid through the dealer or to the county tax assessor-collector at titling and registration, while the long-term lease receipts were not subject to motor vehicle tax.

The letter identified a narrow manufacturing-exemption possibility for a truck-type mixer unit. The purchaser had to buy the truck chassis in one transaction, buy the mixer in another, and then combine them. A mixer purchased already attached to the truck did not qualify.

If the lessee later bought the truck, that was a second taxable sale. Motor vehicle sales tax applied to the later sales price, with no credit for the prior Texas sale.

The letter also said manufacturing-equipment leases were exempt only for a fixed term of at least one year, a limited sales-and-use-tax permit was needed, Texas had no state property tax, and local governments imposed property tax on income-producing tangible property and real property.

What this means for you

Equipment lessors

The historical letter placed tax on the lessor's acquisition for a lease longer than 180 days and did not tax the lease receipts. A later lessee purchase created a separate taxable sale.

Ready-mix businesses

Transaction structure mattered for the mixer exemption. Buying the chassis and mixer separately before assembly produced a different answer from buying one completed truck.

Fleet accountants

Do not assume tax paid on the lessor's original purchase credits a later sale to the lessee. The Comptroller expressly denied that credit.

Common questions

Q: Did Chapter 152 provide a manufacturer exemption for the truck itself?

A: No, according to the letter.

Q: When could the mixer unit potentially qualify?

A: When it was bought separately from the truck chassis and the two were combined afterward.

Q: What happened if the lessee bought the truck?

A: A second taxable sale occurred, with tax due on the then-current sales price.

Q: Did Texas impose a state property tax?

A: The 1999 letter said no, while noting local property taxes on income-producing tangible property and real property.

Citations and references

• Texas Tax Code Chapter 152
• Texas Tax Code Chapter 151

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9910846L

Original ruling text

October 30, 1999

Dear **:

Thank you for your letter concerning the taxability of leasing ready mix
trucks, garbage trucks and mobile mix plants under operating leases. I've
responded to each of your questions below.

Items 1-4. The lessor's purchase of a motor vehicle to be leased under a
single contract exceeding 180 days, is subject to motor vehicle sales tax.
Chapter 152 of the Tax Code, the chapter affecting motor vehicles, does not
contain an exemption for manufacturers. The tax is either paid through the
selling dealer or directly to the local County Tax Assessor-Collector at the
time of titling and registration. The lease receipts are not subject to motor
vehicle tax. This response is appropriate to both ready mix trucks and garbage
trucks.

Please be aware, however, of one twist. The purchase of a truck type mixer
unit itself, may qualify for the manufacturing exemption provided for under
Chapter 151, the tax imposed on most other tangible personal property. In
order to qualify for the exemption, the purchaser (lessor in this case) would
need to purchase a truck cab chassis (motor vehicle) in one transaction, the
mixer unit in another transaction, and then have the two items combined. The
mixer would not qualify for exemption when purchased attached to the truck.

Items 5 and 6. If the lessee purchases the leased truck at anytime during or
after the operating lease, a second taxable sale transaction has occurred and
motor vehicle sales tax will be due at that time on the then sales price. No
credit is available from the previous Texas sale. Generally, the tax will be
paid by the purchaser to the local County Tax Assessor-Collector at the time of
title transfer and registration. If the seller (the leasing company in this
case) is a licensed motor vehicle dealer, the dealer is required to transfer
title and registration. A dealer is only required to handle the tax if the
unit is under 11,000 lbs. gross weight.

Item 7. The lease of manufacturing equipment is exempt only if leased for a
fixed term of at least one year. (The lease of real property is not subject to
this tax.)

Item 8. A limited sales/use tax permit will need to be obtained. I have
included a permit application packet. Please also contact the Texas
Department of Transportation, Motor Vehicle Division, for information on any
license required as a motor vehicle lessor. Their address and phone number are
P. O. Box 2293, Austin, TX 78768-2293 and 512-416-4800, respectively.

Item 9. There is no state property tax in Texas. However, local governments
do impose a property tax on income producing tangible property and real
property. The local Appraisal District should be contacted in the county in
which the property is located.

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 Policy
Division or call one of our Tax Specialists at 1-800-252-1382, toll free.

Sincerely,

Curt Swenson
Tax Policy Division