When a Tennessee motor vehicle dealer separately bills a customer the $5.50 statutory fee for a temporary tag, does the dealer owe Tennessee sales tax or business tax on that charge?

Subject

Whether separately stated temporary motor vehicle tag fees are subject to Tennessee sales and use tax or business tax.

Plain-English summary

The Tennessee Department of Revenue ruled that the $5.50 statutory fee a motor vehicle dealer charges a customer for a temporary tag — when separately stated on the invoice — is not subject to either Tennessee sales and use tax or Tennessee business tax.

Dealers can apply to the Department for temporary tags and issue them to bona fide vehicle purchasers so a car can legally be driven while title and registration paperwork is pending. Dealers pass the $5.50 charge straight through to the customer and remit the entire amount to the state — they keep nothing and aren't compensated for the service. The key question was whether that fee is really the sale of the tag (tangible personal property, which would make it taxable) or payment for something intangible (which would not be taxable if separately billed).

The Department concluded it's the latter. Tennessee's motor vehicle registration statutes frame registration fees — including temporary tags — as a privilege tax on operating a vehicle on public roads, not as revenue from selling a physical tag; a 1929 Tennessee Supreme Court case confirmed these statutes exist for identification and public-safety regulation, not to sell tags. The temporary tag itself is just tangible evidence of an intangible right (the right to drive the car temporarily while registration is pending), similar to how the Tennessee Court of Appeals held in Barnes & Noble Superstores, Inc. v. Huddleston that a $10 discount-club membership card was merely evidence of an intangible discount right, not a taxable sale of the card itself. Because motor vehicle registration and temporary-tag issuance aren't listed among Tennessee's specifically taxable services either, no business tax applies either.

What this means for you

Motor vehicle dealers

You can pass through the state's $5.50 temporary tag fee to your customer as a separately stated invoice line item without charging sales tax or paying business tax on it — as long as you're truly just passing the fee through to the state (not marking it up or keeping any portion, and not charging additional "service" fees on top, which the applicable regulation specifically forbids). If you bundle the fee into a lump-sum charge instead of stating it separately, this exemption may not apply.

Accountants and tax professionals

This ruling is a useful example of the "intangible right represented by tangible evidence" doctrine — the same logic used for membership cards, tickets, or certificates that merely document an underlying right rather than constitute the taxable item themselves (see Barnes & Noble Superstores, Inc. v. Huddleston). The reasoning turns on how the underlying regulatory statute characterizes the fee (here, a privilege/regulatory tax on vehicle operation under Title 55, not a sale under Title 67) — a useful cross-check whenever a client's fee is tied to a government permit, license, or registration process.

Vehicle purchasers/lessees

The temporary tag itself isn't something you're buying — it's proof of your right to drive a newly purchased or leased vehicle while its permanent registration is being processed, and the fee for that right isn't subject to sales tax if your dealer bills it separately.

Common questions

Q: Is a motor vehicle dealer required to charge sales tax on a separately stated temporary tag fee?
A: No, provided the fee is separately stated on the invoice, matches the statutory amount, and is remitted in full to the state with no markup or added service charge.

Q: Does the same fee trigger Tennessee's business tax?
A: No. Motor vehicle registration and temporary-tag issuance aren't among the services enumerated as taxable under the Tennessee business tax statute.

Q: What would change this outcome?
A: If the dealer bundled the tag fee into a lump-sum charge rather than stating it separately, or charged more than the statutory fee/kept a portion as compensation, the exemption analysis in this ruling would no longer clearly apply.

Q: Does this ruling bind the Department for other dealers?
A: No. This is a Revenue Ruling — advisory only and not binding on the Department, even for the taxpayer who requested it.

Citations and references

Statutes and cases:

• Tenn. Code Ann. § 55-4-101(a)-(b) (vehicle registration as a privilege tax on operation, not a sale)
• Tenn. Code Ann. § 55-4-103(a)(1)-(3), § 55-4-115(a)(1)-(3) (temporary operation permits/tags, $5.50 statutory fee)
• Tenn. Comp. R. & Regs. 1340-5-10 (dealer issuance of temporary tags; no additional service charges allowed)
• Tenn. Code Ann. § 67-6-202(a) (sales tax on tangible personal property)
• Tenn. Code Ann. § 67-4-704(a)-(b), § 67-4-708(1)-(4), (2)(F), (3)(C) (Tennessee business tax and its enumerated taxable activities)
• Tenn. Code Ann. § 67-6-102(45)(A), § 67-4-702(a)(20) (definition of "tangible personal property")
• Tenn. Code Ann. § 67-6-102(34)(F), § 67-6-205(a) (Tennessee's specifically taxable services list, registration not included)
• Tenn. Code Ann. § 67-6-102(37) (definition of "sales price")
• United States Fidelity & Guaranty Co. v. Allen, 14 S.W.2d 724 (Tenn. 1929) (purpose of motor vehicle registration statutes)
• Barnes & Noble Superstores, Inc. v. Huddleston, 1996 WL 596955 (Tenn. Ct. App. 1996) (membership card as evidence of intangible right, not taxable tangible property)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/sales/07-06.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 07-06

WARNING
Revenue rulings are not binding on the Department. This presentation of
the ruling in a redacted form is information only. Rulings are made in
response to particular facts presented and are not intended necessarily as
statements of Departmental policy.

SUBJECT
Whether fees paid for temporary motor vehicle tags issued or assigned by a
dealer to bona fide motor vehicle purchasers or lessees are subject to the
Tennessee sales and use tax or the Tennessee business tax when such fees are
stated separately on the customer’s invoice.
SCOPE
Revenue rulings are statements regarding the substantive application of law and
statements of procedure that affect the rights and duties of taxpayers and other
members of the public. Revenue rulings are advisory in nature and are not
binding on the Department.
FACTS
[A REPRESENTATIVE OF TAXPAYER’S] has requested a revenue ruling
pursuant to Tenn. Code Ann. § 67-1-109 regarding transactions in which
Tennessee motor vehicle dealers transfer or assign temporary motor vehicle tags
to bona fide motor vehicle purchasers.
Motor vehicle dealers in Tennessee may apply to the Tennessee Department of
Revenue (the “Department”) for issuance of temporary motor vehicle tags
(“temporary tags”). Dealers may also assign and issue temporary tags to bona
fide purchasers of vehicles or to persons to whom a motor vehicle is loaned or
rented for use as a private passenger vehicle for a temporary period.
Dealers are charged for the temporary tags issued, and when dealers issue or
assign a temporary tag to a bona fide purchaser or lessee, the dealer passes the
charge on to the purchaser by separately identifying the temporary tag charge on
the invoice. All charges for temporary tags are remitted to the Department with
no portion being retained by the dealer. The dealer is not compensated for this
service.

QUESTIONS PRESENTED

1. Are Tennessee motor vehicle dealers required to collect and remit Tennessee
   sales and use tax on charges for temporary motor vehicle tags issued or
   assigned to bona fide motor vehicle purchasers or lessees when the charge
   for the temporary tag is separately stated on the customer’s invoice?
2. Are Tennessee motor vehicle dealers required to collect and remit Tennessee
   business tax on charges for temporary motor vehicle tags issued or assigned
   to bona fide motor vehicle purchasers or lessees when the charge for the
   temporary tag is separately stated on the customer’s invoice?
   RULINGS
3. No.
4. No.
   ANALYSIS
   APPLICABLE STATUTES AND RULES AND REGULATIONS
   Effective July 1, 2006, Executive Order No. 36, transferred the Division of Title
   and Registration and all motor vehicle title and registration responsibilities from
   the Department of Safety to the Department of Revenue. The Department of
   Revenue now has the responsibility for administering the motor vehicle title and
   registration statutes contained in Title 55, Chapters 1-6 of the Tennessee Code
   Annotated.
   Tenn. Code Ann. § 55-4-101(a) and (b), set forth below, require registration of a
   motor vehicle before it can be operated on the streets or highways of Tennessee:
   (a) (1) As a condition precedent to the operation of any motor vehicle upon
   the streets or highways of this state, such vehicle shall be registered as
   herein provided.
   (2) Such registration and the fees provided therefore shall constitute a
   privilege tax upon such operations.
   (b) The commissioner shall be, and is hereby constituted the registrar of
   motor vehicles and, except as otherwise provided in chapters 1-6 of this
   title, every owner of a vehicle intended to be operated in this state and
   required by this chapter to be registered shall, before same is operated,
   apply to the department for the registration of and the registration plates
   for such vehicle.

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Note that Tenn. Code Ann. § 55-4-101(a)(2) states that the fees provided by law
in connection with the registration of a motor vehicle, which includes the issuance
of registration plates, constitute a privilege tax upon operation of the motor
vehicle. The statue does not characterize the registration and issuance of
registration plates as a sale of tangible personal property.
Tenn. Code Ann. § 55-4-103(a)(1)-(3) makes the following provisions concerning
the issuance of temporary operation permits for motor vehicles:
(1) “Temporary operation permit” means a permit which the commissioner is
authorized to issue to an applicant desiring to operate a motor vehicle,
otherwise subject to registration in Tennessee, over the streets and
highways of this state for a temporary period of thirty (30) days, where it
appears that the proposed operation is actually temporary in character.
The fee for this issuance shall be five dollars and fifty cents ($5.50). The
commissioner shall also have the authority to issue one (1) additional
temporary operation permit for a period of thirty (30) days upon payment
of an additional five dollars and fifty cents ($5.50) fee.
(2) A temporary operation permit shall not be renewed or another permit
issued to cover the operation of the same motor vehicle except upon the
written authorization of the commissioner.
The commissioner is
authorized to refuse the issuance of a temporary operation permit herein
provided when it appears that any owner of a motor vehicle is using such
permit as a subterfuge to avoid registering such motor vehicle.
(3) Any person operating a motor vehicle on a temporary operation permit
which has expired or in violation of the terms thereof commits a Class C
misdemeanor and, in addition shall be required to register the vehicle
concerned with the department and the arresting officer shall not permit
the vehicle to leave such officer’s charge or custody until the proper
registration thereof has been effected.
Tenn. Comp. R. & Regs. 1340-5-10, pertinent parts of which are set forth below,
make the following provisions concerning “temporary tags.”
.01 Subject to the limitations and conditions hereinafter set forth, duly qualified
dealers may apply to the Motor Vehicle Division of this Department for and
be issued “temporary tags” . . . [.]
.04 A dealer may assign and issue a temporary tag to a bona fide purchaser
for the vehicle sold to such person by the dealer or to a person for an
automobile loaned or rented to him by the dealer for use as a private
passenger vehicle during such period as the person is awaiting delivery of

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an automobile for which he has contracted or awaiting return of his own
vehicle from the dealer’s repair shop or garage . . . [.]
.07 Every dealer shall be entitled to reimbursement from the purchaser in the
amount of the statutory fee for each “tag” issued but he is not authorized
to collect additional amounts as service or other charges.
.09 A “temporary tag” may be used only by (or for) the person to whom it was
assigned and displayed only on the vehicle for which it was issued.
Motor vehicle dealers often issue a temporary tag to the purchaser of a motor
vehicle so that the vehicle can be lawfully operated on public streets and
highways while the titling and registration of the vehicle is in process and
permanent license plates are being obtained.
Tenn. Code Ann. § 67-6-202(a), set forth in pertinent part below, levies the
Tennessee sales and use tax on the privilege of selling tangible personal
property at retail in Tennessee:
(a) For the exercise of the privilege of engaging in the business of selling
tangible personal property at retail in this state, a tax is levied on the sales
price of each item or article of tangible personal property when sold at
retail in this state; the tax is to be computed on gross sales for the purpose
of remitting the amount of tax due the state and is to include every retail
sale.
Tenn. Code Ann. § 67-4-704(a) and (b) levies the Tennessee business tax on the
privilege of making sales by engaging in any vocation, occupation, business or
business activity enumerated, described or referred to in Tenn. Code Ann. § 674-708(1)-(4). Tenn. Code Ann. § 67-4-708(1)-(4) enumerates certain sales of
tangible personal property as being subject to the tax and Tenn. Code Ann. § 674-708(2)(F) subjects to the business tax any sale of tangible personal property
not specifically enumerated or described elsewhere in Title 67, Chapter 4, Part 7.
“Tangible personal property” is defined for Tennessee sales and use tax
purposes by Tenn. Code Ann. § 67-6-102(45)(A), set forth in pertinent part
below:
(A) “Tangible personal property” means and includes personal property that
may be seen, weighed, measured, felt, or touched, or is in any other
manner perceptible to the senses.
Tenn. Code Ann. § 67-4-702(a)(20) defines tangible personal property in the
same manner for purposes of the Tennessee business tax.
Certain services named in Tenn. Code Ann. § 67-6-102(34)(F) are also subjected
to Tennessee sales and use taxes by Tenn. Code Ann. § 67-6-205(a), but the

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registration of motor vehicles is not one of the taxable services specified by the
law. Likewise, registration of motor vehicles is not one of the services subjected
to the Tennessee business tax by Tenn. Code Ann. § 67-4-708(3)(C).
Tenn. Code Ann. § 67-6-102(37) states that the sales tax is levied on the “sales
price” of the tangible personal property or the taxable service sold. Tenn. Code
Ann. § 67-4-709 applies the business tax rates to both wholesale and retail
taxable receipts of a business.
APPLICATION OF STATUTES AND RULES AND REGULATIONS TO
QUESTIONS PRESENTED
It is without dispute that the temporary tags that motor vehicle dealers issue to
bona fide motor vehicle purchasers or lessees for a temporary period are
tangible personal property. If the $5.50 charge made by the motor vehicle dealer
to each customer to which a temporary tag is issued is for the sale of the
temporary tag, then the charge is subject to both the Tennessee sales and use
tax and the Tennessee business tax.
However, if the $5.50 charge is for an intangible right rather than for the sale of
tangible personal property, it is subject to neither the sales and use tax nor the
business tax when the charge is separately stated on the customer’s invoice.
There are several indications that the charges made by a motor vehicle dealer
when issuing a temporary tag to his customer is for intangible rights rather than
for the sale of the tags themselves, which are tangible personal property.
First, the motor vehicle registration and licensing statutes found in Title 55,
Chapter 4 of the Tennessee Code Annotated do not characterize fees charged in
connection with securing authorization to operate a motor vehicle on the streets
and highways of Tennessee as resulting from the sale of temporary tags. Tenn.
Code Ann. § 55-4-101(a)(1) and (2), set forth again below, state that the
registration of a motor vehicle, which would involve the issuance of license
plates, is a condition precedent to its operation on the streets and highways of
Tennessee and that the fees in connection with such registration are privilege
taxes upon the operation of a motor vehicle on the streets and highways of this
state.
(a) (1) As a condition precedent to the operation of any motor vehicle upon
the streets or highways of this state, such vehicle shall be registered as
herein provided.
(2) Such registration and the fees provided therefore shall constitute a
privilege tax upon such operations.

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In United States Fidelity & Guaranty Co. et al. v. Allen, 14 S.W.2d 724 at 725
(Tenn. 1929) the Tennessee Supreme Court made the following statement about
the purpose of Tennessee’s motor vehicle registration statutes:
Our statutes requiring the registration of automobiles were enacted not alone
for revenue purposes, but as a means of identification of the owner of any
machine negligently operated to the damage of person or property and by
way of protection to those so injured by such negligent operations.
Tennessee’s motor vehicle registration statutes, including Tenn. Code Ann. § 554-115(a)(1)-(3) permitting the issuance of temporary tags, appear to have been
enacted for the purpose of regulating the operation of motor vehicles on the
streets and highways of Tennessee under the police power of the governing
authority.
This is consistent with the proposition that fees charged in connection with
temporary tags issued to allow a motor vehicle otherwise subject to registration
to temporarily operate on the highways of the State of Tennessee are not for the
sale of the tags, but are for the license, or right, to operate the vehicle on the
streets and highways of this state. The temporary tag obtained with payment of
the fee is only a tangible evidence of the right to operate the vehicle on public
streets and highways for a temporary period of time during which the vehicle is
not actually registered.
It is quite common for an intangible right to be represented by the issuance of a
certificate, card, coupon or other tangible evidence. In Barnes & Noble
Superstores, Inc. v. Huddleston, WL 596955 (Tenn.Ct.App. 1996) the Tennessee
Court of Appeals had the opportunity to consider the application of Tennessee’s
sales and use tax in such a situation.
In Barnes & Noble, customers paid a $10.00 annual fee for a Reader’s Choice
Club membership card that entitled them to a 10% discount on merchandise in all
of the taxpayer’s stores. The court held that the club membership card issued
the customer was merely an indicia of the intangible right to purchase
merchandise at a discount and incidentally aided the customer in the exercise of
that right. The court held that the cards themselves were not subject to
Tennessee sales and use tax.
CONCLUSION
For the reasons explained above, the fees paid for temporary motor vehicle tags
issued or assigned by a dealer to bona fide motor vehicle purchasers or lessees
are not for the sale of tangible personal property in the form of the temporary
tags. Such fees are for the intangible right to operate the vehicle on public
streets and highways for a temporary period of time during which the vehicle is
not actually registered.

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Under the facts presented, fees paid by customers to dealers for issuance of
temporary tags under the provisions of Tenn. Code Ann. § 55-4-115(a)(1)-(3) and
Tenn. Comp. R. & Regs. 1340-5-10 are not subject to Tennessee sales and use
taxes or Tennessee business taxes when such fees are separately stated on the
customer’s invoice.

Arnold B. Clapp
Special Counsel to the Commissioner

APPROVED: Reagan Farr, Commissioner

DATE:

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3-7-07