Can a franchised dealer use its Texas rental permit to defer tax when rental-plan vehicles are titled to the manufacturer's finance affiliate?

Plain-English summary

The Texas Comptroller explained when a franchised dealer may use its motor vehicle rental permit to register rental-plan vehicles tax-deferred even though legal title names the manufacturer's finance affiliate in care of the dealership.

The letter explained a conditional rule for a rental-purchase plan: if a master lease requires the dealer at termination to buy the vehicle or pay its unamortized capitalized cost in exchange for title rights, the arrangement is a sale for tax purposes, with the manufacturer or affiliate retaining title as security. The request did not provide the contract terms needed to establish that this dealer's plan met that condition.

Under such a rental-purchase plan, the dealer is responsible for minimum tax based on the contract sales price. The manufacturer or affiliate needs no separate rental permit if the dealer pays all minimum tax and the affiliate makes no other Texas rentals outside these affiliated dealer plans.

What this means for you

Franchised dealers

Affiliate title ownership alone did not prevent use of the dealer's permit under the stated conditions. Form 130-U still had to be properly completed and signed by both parties, or by the dealer under a valid power of attorney.

Manufacturer finance affiliates

The no-permit result was narrow: all minimum tax had to be borne by the dealer, and the affiliate could not conduct other Texas rental arrangements.

County tax offices

The dealer may need to supply a contract or manufacturer letter showing that the vehicle falls under a qualifying rental-purchase plan.

Common questions

Q: Must the dealer be the title owner?

A: No. The letter allows affiliate title in care of the dealer under its stated conditions; it separately explains a conditional rule for rental-purchase plans.

Q: Who owed minimum tax?

A: Under a qualifying rental-purchase plan, the dealer owes minimum tax based on the contract price.

Q: Could the dealer sign for both parties?

A: Yes, if it held power of attorney for the manufacturer or affiliate.

Citations and references

• Tex. Tax Code § 152.001(5)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200705158L

Original ruling text

May 30, 2007

Subject: 07127189-Texas Motor Vehicle Retailer's (Rental) Permit

Dear **:

This is in response to your e-mail question on whether a dealer may use its Texas Rental Permit number to defer motor vehicle sales tax on rental cars acquired from ** Motor Company through the ** Rent A Car (**) plan when the units are to be titled in the name of
** Motor Credit Company in care of (C/O) the dealership.

When a manufacturer and/or its affiliated company leases/rents/sells motor vehicles to affiliated franchised dealers for re-rental purposes under a dealer rental plan, the dealer may use its Texas Motor Vehicle Retailers Permit number on the Title Application and Tax form (130-U) to defer the sales tax even though the vehicle may be titled to the manufacturer or its affiliated corporation in care of (C/O) the dealer's name and address, provided the 130-U is properly completed and signed by both parties to the transaction. The dealer may sign for both parties if the dealer has a power-of-attorney to sign for the manufacturer or the affiliated company.

Generally, a lease or rental agreement, regardless of length of term, to provide a motor vehicle to another for re-rental is the rental of the vehicle pursuant to Section 152.001(5) of the Tax Code. And, in order to register/title the vehicle tax deferred, the title owner/lessor must hold a motor vehicle rental permit with the .

However, vehicles leased/rented/sold by a manufacturer and/or its affiliated company to only affiliated franchised dealers for re-rental purposes under a dealer rental plan or master lease agreement stipulating that at the termination of the lease lessee must either purchase the vehicle or pay the unamortized capitalized cost for the vehicle in return for all of the right, title and interest in the vehicle, are, for tax purposes, the sale rather than the lease of the vehicles with the manufacturer and/or the affiliated company retaining title as security for payment of the purchase price.

Under such an agreement, the affiliated franchised dealer may use their Texas rental permit number to register a rental vehicle tax deferred even though the vehicle may be titled in the name of the manufacturer or its affiliated company. The dealer will be responsible for the minimum tax due on any vehicle put into rental service under such a rental purchase plan. The minimum tax is to be based on the sales price for the vehicle pursuant to the contract between the manufacturer and/or its affiliated company and the dealer.

A manufacturer or its affiliated corporation does not need a rental permit if all the minimum tax is satisfied by the dealer and the manufacturer or its affiliated company does not rent vehicles in Texas under any arrangement other than a rental purchase plan with affiliated dealers.

A dealer may need to provide the county tax assessor-collector at the time of titling and/or registration confirmation that the vehicles in question come under a dealer rental purchase plan by providing a copy of the contract or a letter from either the manufacturer or its affiliated company.

For online access to the section of the tax code noted above go to: www.window.state.tx.us/taxinfo/mtr_veh/mv_su.html.

Scroll down to "Statutes" and click to open.

This opinion is based on the facts you submitted. Other facts, though similar, may yield different results. I hope this information helps. If you have further questions, please e-mail them to [email protected], or you may reach me by phone at (800) 531-5441, ext. 3-4986.

Our goal is to provide you with prompt, professional service. Please take a moment to complete our on-line survey at http://aixtcp.cpa.state.tx.us/surveys/tpsurv2/index.html.

Sincerely,

Ken Koch
Tax Policy Division

From: **
Sent: Friday, May 04, 2007 4:55 PM
To: Tax Help
Subject: Texas Motor Vehicle Retailer's (Rental) Permit

We have been unable to use our Rental Permit to defer tax on our rent cars.

** Motor Company states that all ** Rent A Car (**) units are to be titled as follows:

Owner - ** Motor Credit Company
C/O Dealership Name
Dealership Address

When we were doing the paper work and requesting title changes, our tax assessor informed us that we could not use our Motor Vehicle Retailer’s (rental)permit to defer tax (V.A.T.S.,tax code 152.002. The reason she gave was that we are not the owner on the title.

I have spoken with other ** dealers in the state (** &
** Dealers) and they are using their permit #’s and are still deferring the tax. Is my tax assessor here in ** County reading the regulations correctly, and are the other counties failing to tax the
** rental dealers? We are not trying to get out of paying tax we owe, just confused since the others dealer are not having the same trouble changing and titling and registering their rent cars.

5-04-07