When a customer returns a vehicle under a satisfaction guarantee, what refund is required before Texas motor vehicle sales tax can be refunded?

Plain-English summary

The Texas Comptroller explained when returning a vehicle under a satisfaction-guarantee program creates a failure of sale eligible for a motor vehicle sales tax refund.

The customer had to return the vehicle to the selling dealer and receive a full cash or credit refund of the total consideration paid. Total consideration included the vehicle and accessories attached on or before the sale.

That meant a dealer could not keep the price of installed items such as a bed liner or trailer hitch. If those charges were not refunded, the sale had not fully failed and the motor vehicle tax was not refundable.

Some nonrefundable amounts did not spoil the claim: state-imposed title and registration fees, service-contract charges, and insurance charges could remain without blocking the motor vehicle sales tax refund.

What this means for you

Motor vehicle dealers

To support a failure-of-sale refund, reverse the full taxable vehicle consideration, including attached accessories. Keep clear records of the vehicle return and the customer's complete price refund.

Vehicle buyers

A return program's marketing label is not enough. Tax relief depends on what the dealer actually refunds. If the dealer retains part of the taxable vehicle or accessory price, the Comptroller's failure-of-sale standard is not met.

Refund claim preparers

Separate taxable consideration from statutory fees and separately charged service contracts or insurance. The latter did not have to be refunded under this letter.

Common questions

Q: Must the entire vehicle price be refunded?

A: Yes, by cash or credit, with the vehicle returned to the selling dealer.

Q: Can the dealer keep the price of installed accessories?

A: No. Accessories attached on or before sale were part of total consideration, so retaining those charges defeated the tax refund.

Q: Must title and registration fees be refunded?

A: Not under this letter. State-law fees that were generally nonrefundable did not negate motor vehicle sales tax relief.

Citations and references

• Tex. Tax Code § 152.002(b)(2)
• Comptroller's Decision Nos. 45,173, 42,929, 37,734, and 36,360

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200909449L

Original ruling text

September 15, 2009

Dear **:

We recently spoke concerning whether motor vehicle sales tax paid on sales
where the vehicle is returned under the GM 60 Day Satisfaction Guarantee
program is refundable.

Texas Tax Code Sec. 152.002(b)(2) states that total consideration does not
include “a full cash or credit refund to a customer of the sales price of the
motor vehicle.” This section is the basis of our long standing failure of sale
policy. Administrative hearings, including Comptroller’s Decision No. 45,173
(2005), 42,929 (2003), 37,734 (1999) and 36,360 (1997) have supported this
position.

A failure of sale occurs only if the entire amount received from the customer
is fully refunded to the customer. If a full refund of the total consideration
paid for the vehicle is made to the purchaser and the purchaser returns the
vehicle to the selling dealer, a refund of the motor vehicle sales taxes paid
on the vehicle may be made.

It is my understanding that certain charges for dealer installed accessories,
such as truck bed liners and trailer hitches, will not be refunded to the
purchaser under this program. "Total consideration" as defined under Sec.
152.002 means the amount paid or to be paid for a motor vehicle and its
accessories attached on or before the sale. If the purchase price of dealer
installed items is not refunded to the purchaser, the transaction will not
qualify as a failure of sale and motor vehicle sales tax cannot be refunded.

Certain fees imposed by state law, such as title application and registration
fees, that are not generally refundable in these situations will not negate the
refund of motor vehicle sales tax. Service contracts or insurance charges would
also not affect a refund.

This response is based on the facts presented. Different facts may result in a
different response.

Please feel free to contact me if I may be of assistance.

Sincerely,

Curt Swenson
Tax Policy Division