Who owed Texas use tax on out-of-state leased vehicles operated by a Texas carrier solely in interstate commerce?

Plain-English summary

The Texas resident carrier operating the out-of-state leased vehicles owed historical use tax, even though nonresident lessors held legal title.

The vehicles were purchased outside Texas and later brought into and used in Texas. The letter treated the resident lessee as the taxable operator and said registration-law ownership did not necessarily decide use-tax liability.

For registration, the carrier qualified as an owner because it had legal possession and control under an Interstate Commerce Commission permit. The Comptroller assumed the agreements complied with former 49 C.F.R. § 1057.4.

The letter declined to decide whether taxing vehicles used only in interstate commerce, or taxing their full purchase price, violated the Commerce Clause. It left those constitutional questions to courts but cited Capitol Greyhound Lines v. Brice as support for the agency's position.

What this means for you

The historical analysis separated legal title, registration ownership, operational control, and constitutional review. Interstate use alone did not lead the agency to withdraw the assessment.

Common questions

Q: Did the out-of-state lessor owe the tax?
A: No, according to the letter.

Q: Who did?
A: The Texas resident lessee and operator.

Q: Did the Comptroller decide the Commerce Clause challenge?
A: No. It said courts should decide it.

Citations and references

• V.A.T.S., Taxation-General art. 6.01(2)
• Vernon's Annotated Civil Statutes arts. 6675a-2(a) and 6675a-1(1)
• 49 C.F.R. § 1057.4
• U.S. Const. art. I, § 8, cl. 3
• Capitol Greyhound Lines v. Brice, 339 U.S. 542 (1950)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/7409L2019C04

Original ruling text

ALERT: The tax rates cited in this article are no longer the current motor vehicle sales tax
or motor vehicle rental tax rates.

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, TEXAS 78774

September 23, 1974

Dear ***:

With regard to the question raised in your letter of September 11, 1974, regarding the applicability of Motor Vehicle Use Tax upon the vehicles leased by your client, CORP A from out-of-state lessors which are to be solely used in interstate commerce, we see no valid factual distinction between your case and the one decided in our inter-office memorandum dated May 31, 1974. In the memorandum, we did not take the position that the out-of-state lessor who held legal title to the motor vehicles would owe Texas Motor Vehicle Use Tax; instead, we decided that the lessee, as the resident operator would owe the use tax under V.A.T.S., Tax.-Gen., art. 6.01(2). Similarly, your client, rather than the non-resident legal title holder of the motor vehicles involved, would owe motor vehicle use tax on all vehicles originally purchased outside the State and later brought into and used within the State of Texas.

The statute imposing Motor Vehicle Use Tax (V.A.T.S., Tax.-Gen., art. 6.01(2)) and the statute requiring registration of all motor vehicles (Vernons Ann. Civ. St. art. 6675a-2(a)) are not in pari materia, and the question of who qualifies as an "owner" for purposes of the registration statute is not necessarily determinative of who owes use tax as a resident operator. For purpose of the registration statute, your client would, however, qualify as an "owner" as defined in Vernon's Ann. Civ. St., art. 6675a-1(1), since it has the legal right of possession and control of all motor vehicles used by it pursuant to a permit issued by the Interstate Commerce Commission, and would also be considered a resident operator of motor vehicles originally purchased outside the state and subsequently brought into the state for use within the state, and would consequently owe motor vehicle use tax on all such vehicles.

With regard to your statement, "there is not one single item in this agreement (between CORP A, the Carrier, and the Contracting Owner) that releases ownership through legal title, possession, nor control to the Carrier, "we must nevertheless assume for purposes of properly administering the Motor Vehicle Sales and Use Tax Act, that all such agreements conform to the requirements of the Interstate Commerce Commission found in 49 CFR 1057.4, as a matter of public policy.

Whether the imposition of the Motor Vehicle Use Tax on the resident operator of a vehicle used in Texas only in interstate commerce constitutes a violation of Article 1, Section 8, Clause 3 of the United States Constitution (Commerce Clause) is a question which we feel should be decided by the Courts rather than an administrative agency; however we consider the United States Supreme Court decision in Capitol Greyhound Lines v. Brice, 339 U.S. 542, 94 L. Ed. 1053, 70 S. Ct. 806, 17 ALR 2d 407 (1950) support for our position that such a tax would not contravene the Commerce Clause, since in that case a Maryland tax almost identical in its operation and effect was upheld.

Finally since V.A.T.S., Tax.-Gen., art. 6.01(2) clearly provides that, "The tax imposed by this subsection shall be equal to four per cent (4%) of the total consideration paid or to be paid for said vehicle at said retail sale," we are not in a position to answer your charge that the imposition of the tax on the full purchase price constitutes a violation of the Commerce Clause of the United States Constitution, since to do so would require our deciding the constitutionality of V.A.T.S., Tax.-Gen., art. 6.01(2) which decision we also feel should be left to the Courts.

Very truly yours,

Robert S. Calvert

Comptroller of Public Accounts