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 allowed a franchised dealer to use its motor vehicle rental permit to register rental-plan vehicles tax-deferred even though legal title named the manufacturer's finance affiliate, care of the dealership.

The ruling treated the master arrangement as a rental-purchase plan: at lease end the dealer had to buy the vehicle or pay its unamortized capitalized cost in exchange for all title rights. For tax purposes, that made the arrangement a sale with the manufacturer affiliate retaining title as security.

The dealer was responsible for the vehicle's minimum tax liability based on the contract sales price. The manufacturer or affiliate did not need its own rental permit if the dealer satisfied all minimum tax and the affiliate made no other Texas rentals outside these affiliated dealer plans.

What this means for you

Franchised dealers

The title name did not prevent use of the dealer's permit on these facts. 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 the rental-purchase contract or a manufacturer letter showing that the vehicle falls under the qualifying dealer plan.

Common questions

Q: Must the dealer be the title owner?

A: Not under this specific rental-purchase plan; title could name the affiliate in care of the dealer.

Q: Who owed minimum tax?

A: The dealer, calculated from the manufacturer-affiliate-to-dealer 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