Can a Utah dealer get a 'title-only' Utah title (with the financing bank's lien recorded) for a motor home sold to a nonresident who takes it out of state, to protect the lender if the buyer never re-titles it in his home state -- and would that trigger Utah sales tax?

Plain-English summary

A Utah dealer selling motor homes and trailers to out-of-state customers, financed through a Salt Lake bank, described a recurring problem: after the sale, the dealer typically had to send the vehicle's title to the customer so he could go to his own county/state to license and re-title the vehicle showing the bank as lienholder. But some customers failed to complete that re-titling step (and some states allow licensing a vehicle without a title or registration at all), leaving both the dealer and the bank exposed if the customer stopped making payments or filed bankruptcy -- a problem the dealer said had already happened twice. The dealer proposed a fix: let the dealer apply for a Utah "title only" (no registration/plates) in the customer's name with his out-of-state address, showing the bank's lien, to protect the bank's security interest regardless of what the customer did afterward. The dealer specifically hoped the Commission would confirm this title-only procedure would NOT trigger Utah sales tax, since the customer was a nonresident not using the vehicle in Utah.

Utah law doesn't allow a title-only transaction to secure a lien on an out-of-state vehicle. The Commission rejected the proposed workaround outright: Utah law simply does not contemplate issuing a title-only document to secure a lien on a vehicle that is titled and registered in ANOTHER state. Beyond the legal obstacle, the Commission also flagged a practical problem with the idea even if it were permitted: any vehicle purchased by a nonresident will presumably end up titled in the purchaser's actual state of residence or wherever it gets registered, and THAT is the title that future purchasers or lienholders will actually check for lien information -- a separate Utah-only title wouldn't be the document anyone relies on to discover the bank's lien, so it wouldn't actually solve the dealer's underlying protection problem.

The Commission offered a practical procedural alternative instead. Rather than a Utah title-only filing, the Commission suggested the dealer and bank take a more direct approach: upon selling a vehicle to a nonresident, complete the title application and deliver or mail it DIRECTLY to the purchaser's state of registration, following that state's own procedures -- rather than routing the title through the customer. If the vehicle owner then fails to register the vehicle in that state within a reasonable time, the title documents can be set up to be returned to the dealer or bank per their own instructions, keeping control of the document in the seller's/lender's hands rather than leaving it with a potentially unreliable buyer.

On sales tax, the dealer's underlying worry was addressed by the existing nonresident exemption. No Utah sales tax is due on a vehicle purchase by a bona fide nonresident who signs a Nonresident Affidavit (form TC-583), removes the vehicle from Utah, and otherwise meets the requirements of Utah Admin. Rule R865-19S-98. This exemption is available through the standard sale process -- it doesn't depend on, and isn't threatened by, whether the dealer pursues any special title-only filing.

What this means for you

RV, trailer, and vehicle dealers selling to nonresident, out-of-state buyers

Don't route the title document through the buyer as the mechanism for perfecting your lender's lien -- instead, complete the title application at time of sale and mail or deliver it directly to the buyer's home state's titling authority, following that state's own procedures. Build in a return-to-sender provision so the documents come back to you or the lender if the buyer doesn't complete registration within a reasonable window.

Finance companies and banks lending on vehicles sold to nonresidents

Coordinate with the dealer to ensure your lien gets recorded on the ACTUAL home-state title the buyer will use -- not a parallel Utah-only document that other parties won't check. A Utah "title only" filing isn't legally available and wouldn't protect your interest even if it were, since lien searches happen against the buyer's real registration state.

Dealers worried that special titling procedures might trigger sales tax

Rely on the standard Nonresident Affidavit exemption process (form TC-583, per Utah Admin. Rule R865-19S-98) for bona fide nonresident buyers who remove the vehicle from Utah -- that exemption exists independent of any lien-perfection workaround, so there's no need to invent a special procedure out of sales tax concerns.

Common questions

Q: Can a Utah dealer get a "title only" Utah certificate to protect a lender's lien when selling to an out-of-state buyer?
A: No. Utah law does not allow a title-only transaction to secure a lien on a vehicle that will be titled and registered in another state.

Q: If a title-only filing were possible, would it actually protect the lender?
A: The Commission suggested not -- future purchasers and lienholders check the buyer's actual home-state title, not a separate Utah-only document, so it wouldn't reliably surface the lien anyway.

Q: What's the recommended alternative for protecting a lender's security interest on a vehicle sold to a nonresident?
A: Complete the title application at sale and mail/deliver it directly to the buyer's state of registration under that state's procedures, with a provision for the documents to be returned to the dealer/lender if the buyer doesn't register the vehicle within a reasonable time.

Q: Is Utah sales tax due on a vehicle sold to a nonresident who takes it out of state?
A: No, if the buyer is a bona fide nonresident who signs a Nonresident Affidavit (form TC-583), removes the vehicle from Utah, and meets the requirements of Utah Admin. Rule R865-19S-98.

Q: Does this ruling apply to my dealership's out-of-state sales process?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission handles nonresident vehicle titling and the standard sales tax exemption procedure.

Citations and references

Statutes and rules:

• Utah Admin. Rule R865-19S-98 (nonresident vehicle purchase sales tax exemption qualifications)

Forms referenced:

• Form TC-583 (Nonresident Affidavit)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/99-048.pdf

Original ruling text

99-048

Response
September 27, 2000

REQUEST LETTER

99‑048

Dear NAME,

This letter is a request for
information and an opinion from the Tax Commission regarding a matter of titling
we talked about earlier today. We are having a problem with titling of vehicles
(motor homes & trailers) to customers who live out of state. Each state
varies as to the manner in which they title vehicles making the end result
difficult to predict. The problem stems from a situation where we sell a
vehicle to a non-resident consumer, and we arrange the financing, usually with
a Salt Lake bank. In many cases we are forced to send the title to the customer
so he can go to his county or state and have the vehicle licensed &
re-titled showing the bank as the lien holder.

The problem comes into play
when, for various reasons, the customer does not do his part to get a new title
and perfect the lien of the bank. Some states allow a person to license the
vehicle without a title or registration. As a result both COMPANY and the bank
are left in a very difficult situation should the consumer quit making
payments, or worse still, file bankruptcy. We have such a case right now, and a
second similar situation where the customer is delinquent.

Here is my view of the
solution. If we could submit application for Atitle only@ in Utah in the name of the customer with his out of
state address, showing the lien of the bank and get a Utah title we would
protect both the Bank and us in the event the customer defaults. We would not
be registering and plating these vehicles. In talking with you and your people
it seems that this should be no problem. What could create a problem is if the
Tax Commission expects to collect Sales Tax as a result of only titling the
vehicle. My hope is that they would recognize, that in as much as the customer
is a non-resident, not using the vehicle in the state, that the state is not
due the sales tax.

The reason for allowing this
type of titling is to protect Utah businesses from out of state consumers who
fall on hard times or who are otherwise unscrupulous. If we were required to
pay the sales tax we would be left in a position where it would not be
profitable to make the sale, thus the income tax that we and the banks pay to
the state on our profits from the sale would be lost. So it seems a fair and
prudent solution.

What I would like to get is
an opinion letter from the Tax Commission approved by the commissioners that
would allow this procedure to move forward. If you would please help in procuring
the same I would greatly appreciate it. If you or the commission has need of
further information or clarification please don't hesitate to call me at #####.

Sincerely,

RESPONSE
LETTER

September
27, 2000

RE: Advisory
Opinion - Titling Vehicles Purchased in Utah, Then Immediately Taken
Out-of-State

Dear NAME,

The
Tax Commission has received your request for information pertaining to the
titling of recreational vehicles purchased in Utah by non-residents, then
transported out of state. Specifically,
you ask if a local finance company can require an out-of-state vehicle
purchaser to title the vehicle in Utah for purposes of perfecting the finance
company=s security interest in the vehicle. Further, you ask if the title can be
obtained without payment of Utah sales tax on the transaction.

Sales
tax is due on the purchase of a vehicle in Utah only if the transaction itself
is taxable in Utah. There is no Utah
sales tax due on the purchase of a vehicle in Utah by a bona fide nonresident
who signs a Nonresident Affidavit, removes the vehicle from Utah and otherwise
complies with the qualifications for exemption as outlined on the affidavit
form TC-583 and Utah Administrative Rule R865-19S-98 (copies enclosed).

Turning
to your question regarding Utah title, Utah law does not contemplate a title-only
transaction to secure a lien on a vehicle that is titled and registered in
another state. Furthermore, we do not
believe that a title-only transaction here will resolve the finance company=s concerns.
Presumably any vehicle purchased by a nonresident will be titled in the
purchaser=s state of residence or in the state where the vehicle
is registered. That is the title that
subsequent purchasers or encumbrancers look to for lien information, and that
is the title that the finance company must use to perfect its lien.

Procedurally,
you and the finance company can take steps to ensure that the lien is properly
recorded on the out-of-state title.
Upon sale of a vehicle to a
nonresident purchaser, you should complete the title application and deliver or
mail it directly to the state of registration in accordance with the procedures
established in that state. If the
vehicle owner fails to register the vehicle in that state within a reasonable
time, the title documents should be returned to you or the finance company
according to your instructions.

If
you have additional questions, please let us know.

For
the Commission,

Marc
B. Johnson

Commissioner