Is a Texas local government corporation created under Transportation Code Chapter 431 exempt when it buys vehicles and other property?

Plain-English summary

The Texas Comptroller confirmed that a local government corporation created under Transportation Code Chapter 431 and Local Government Code Chapter 394 could buy a motor vehicle without Texas motor vehicle sales and use tax.

Transportation Code § 431.102(b) says the corporation's property and transactions to acquire property receive the same exemption as a Chapter 394 housing finance corporation. Local Government Code § 394.905 broadly exempts the corporation, its property, income, bonds, and bond transfers from state and local taxes, subject to its separate franchise-tax limitation.

The Comptroller read the word "property" broadly. The letter said the exemption reached motor vehicle tax under Chapter 152, boat and boat-motor tax under Chapter 160, and state and local limited sales and use tax under Chapter 151.

The corporation was not treated as a public agency or an extension of the city. Its exemption came from the statutes governing the separate corporation. Therefore, it did not have to display the exempt license plates required for a public agency's vehicle exemption.

What this means for you

Local government corporations

Confirm that the entity was actually chartered under Chapter 431 and fits the referenced Chapter 394 structure. The favorable result followed the corporation's own statutory exemption, not merely its relationship with a city.

Municipal officials

Creating an entity to act on behalf of a local government does not necessarily make it a Tax Code "public agency." The legal basis for exemption and registration documentation may differ even when both structures avoid tax.

County tax offices

On these facts, the corporation could present the Comptroller letter to establish exemption when registering purchased vehicles and did not need public-agency exempt plates.

Common questions

Q: Why was the vehicle purchase exempt?

A: Section 431.102(b) applied the Chapter 394 exemption to property acquisitions by the local government corporation, and § 394.905 used broad tax-exemption language.

Q: Was the corporation a public agency?

A: No. The Comptroller treated it as a discrete entity acting on behalf of local government, with its own statutory exemption.

Q: Did it need exempt license plates?

A: No. That plate condition applied to the public-agency exemption, not this corporation's separate exemption.

Q: Did the letter mention refunds for tax already paid?

A: Yes. It said vehicle tax paid during the previous four years could be claimed on Form 14-202, but current refund deadlines and forms should be verified before filing today.

Citations and references

• Tex. Transp. Code §§ 431.003(4), 431.102(b)
• Tex. Loc. Gov't Code § 394.905
• Tex. Tax Code §§ 152.001(7), 152.082
• Tex. Tax Code chs. 151, 152, 160, 171

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/201007705L

Original ruling text

From: Timothy Pingree
Sent: Wednesday, July 14, 2010 2:52 PM
To: **
Cc: **; Curt Swenson; Lavonne Key; Ken Koch; Candace Cawood;
Christina Mouse
Subject: #10146687 – RE: #05325816 – RE: Exemption for Corporation created
under Transportation Code Chapter 431

July 14, 2010

RE: #10146687

Dear **:

Thank you for your inquiry regarding the purchase of motor vehicles by the
CORPORATION A.

In our telephone conversation of May 25, 2010, you stated that the Corporation
was created by the CITY A and the associated property is operated as the HOTEL
A. You asked that our office re-visit the determination rendered in our
previous response # 05325816. In our subsequent conference call with your
attorney, INDIVIDUAL A, INDIVIDUAL A ventured that the corporation should be
viewed as a public agency (i.e., an extension of the CITY A) and should,
therefore, be exempt from the payment of motor vehicle sales and use tax.

RESPONSE

As noted in our response # 05325816 (issued November 21, 2005 and included
below), the corporation’s purchase of a motor vehicle is exempt from motor
vehicle sales and use taxes.

The CORPORATION A was created pursuant to the provisions of Transportation Code
Chapter 431 and Local Government Code Chapter 394. Transportation Code Section
431.102(b) and Local Government Code Section 394.905 create a broad exemption
for a local government corporation chartered under the provisions of
Transportation Code Chapter 431. The language of those two sections follows:

“Section 431.102. APPLICATION OF CHAPTER 394, LOCAL GOVERNMENT CODE . . .

. . . (b) The property of a local government corporation and a transaction to
acquire the property is exempt from taxation in the same manner as a
corporation created under Chapter 394, Local Government Code . . . .”

“Section 394.905. EXEMPTION FROM TAXATION. The housing finance corporation,
all property owned by it, the income from the property, all bonds issued by it,
the income from the bonds, and the transfer of the bonds are exempt, as public
property used for public purposes, from license fees, recording fees, and all
other taxes imposed by this state or any political subdivision of this state.
The corporation is exempt from the franchise tax imposed by Chapter 171, Tax
Code, only if the corporation is exempted by that chapter.”

Note that the language in Section 431.102(b) is sweeping in that it refers
simply to a transaction involving the acquisition of “property.” Because it
places no limitation on the type of property involved, it creates an exemption
from motor vehicle sales and use tax (Chapter 152, Tax Code), as well as boat
and boat motor tax (Chapter 160, Tax Code) and both state and local limited
sales and use taxes (Chapter 151, Tax Code).

The exemption, however, stems from the fact that the legislature created a
discrete entity in the aforementioned language as opposed to deeming the entity
a “public agency.” That is, although it is created to “act on behalf of a local
government” [refer to Transportation Code Section 431.003(4)], it is not
treated as an extension of the CITY A itself. Similar discrete exemptions
exist for rural electric cooperatives established under Utilities Code Section
161.062 and telephone cooperatives established under Utilities Code Section
162.062.

Moreover, while a “public agency,” as defined in Tax Code Section 152.001(7),
is required to display exempt license plates pursuant to Tax Code Section
152.082 on a motor vehicle for the unit to be exempt, the CORPORATION A is not
required to register a vehicle with such plates to avail itself of its
exemption from motor vehicle sales and use tax. As noted, it is not a public
agency and therefore bears no such burden.

If you have purchased a motor vehicle and paid the tax in the last four years,
you may seek a refund by completing our Form 14-202 (attached). In the future,
you may furnish this letter response to establish exemption when registering
vehicles you purchase. Additionally, a redacted copy of this response will be
placed on the State Tax Automated Research (STAR) system on our website at:
http://cpastar2.cpa.state.tx.us/index.html.

Complete Texas motor vehicle sales and use tax information, including rules,
statutes, publications, and frequently asked questions, can be found on the
Motor Vehicle Sales and Use Tax Web page at:
http://window.state.tx.us/taxinfo/mtr_veh/mv_su.html.

This opinion is based on the information presented. Other information, though
similar, may yield different results.

I hope this information is helpful. If you have any questions or need more
information, you may email us at [email protected], call me at
1-800-531-5441 (x50647).

Sign up for e-mail updates on the Comptroller topics of your choice at
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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.

Tim Pingree
Tax Specialist, Tax Policy Division
Comptroller of Public Accounts

cc: **, ** County
Curt Swenson, Tax Policy
Lavonne Key, Tax Policy
Ken Koch, Tax Policy
Candace Cawood, Tax Assistance
Christina Mouse, Tax Assistance

From: **
Sent: Tuesday, May 25, 2010 4:58 PM
To: Timothy Pingree
Subject: FW: #05325816 - RE: Exemption for corporation created under
Transportation Code Chapter 431

Tim,

Thanks for taking your time to visit with me about exempting our new vehicle
from sales taxes. I would appreciate your thoughts on the message below and if
it is still valid, I would like to send on to ** County. Thanks,

-----Original Message-----
From: Timothy Pingree [mailto:[email protected]]
Sent: Monday, November 21, 2005 2:52 PM
To: **
Subject: #05325816 - RE: Exemption for corporation created under Transportation
Code Chapter 431

November 21, 2005

RE: 05325816

Dear **:

Thank you for your inquiry regarding the purchase of motor vehicles by the
CORPORATION A. In our telephone conversation, you stated that the Corporation
was created by the CITY A, and the associated property is operated as the HOTEL
A.

You further stated that the CORPORATION A was created pursuant to the
provisions of Transportation Code Chapter 431 and Local Government Code Chapter
394.

Language from Transportation Code Chapter 431.102 provides broad tax exemption
for a corporation created under Chapter 431, based upon the referenced
provisions of Section 431.102(b) and Local Government Code Section 394.905.
That language follows:

Section 431.102. APPLICATION OF CHAPTER 394, LOCAL GOVERNMENT CODE . . .

. . . (b) The property of a local government corporation and a transaction to
acquire the property is exempt from taxation in the same manner as a
corporation created under Chapter 394, Local Government Code . . . .”

Local Government Code Chapter 394.905 states:

“Section 394.905. EXEMPTION FROM TAXATION. The housing finance corporation,
all property owned by it, the income from the property, all bonds issued by it,
the income from the bonds, and the transfer of the bonds are exempt, as public
property used for public purposes, from license fees, recording fees, and all
other taxes imposed by this state or any political subdivision of this state.
The corporation is exempt from the franchise tax imposed by Chapter 171, Tax
Code, only if the corporation is exempted by that chapter.”

Note that the language is sweeping in that it refers simply to a transaction
involving the acquisition of “property.” Because it places no limitation on the
type of property involved, it creates an exemption from motor vehicle sales and
use tax, as well as both state and local limited sales and use taxes. Moreover,
because the corporation does not meet the definition of a “public agency,” as
outlined in Texas Tax Code Section 152.001(7), it is not required to display an
exempt license plate under the provisions exempting sales to public agencies
(refer to TTC Section 152.082).

The aforementioned statute citations may be accessed from our website at
http://window.state.tx.us/m23taxes.html. Click on “Statutes - Tax Code,’ and
look for the relevant chapters.

This opinion is based on the information presented. Other information, though
similar, may provide a different result.

If you have any questions or need additional information, you can reply to this
email, call me at 1-800-531-5441 ext. 50647, or write to Tax Policy Division,
P. O. Box 13528, Austin, Texas 78711-3528.

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/tpsurv/.

Regards,

Tim Pingree
Tax Policy