Ezel / Tax Rulings / TX
TX 7901L2021E10 Motor Vehicle Tax 1979-01-29

Was a separately labeled collision-protection charge exempt insurance or a taxable collision-damage waiver on a car rental?

Short answer: It was taxable. Separately stated insurance charges were outside the historical gross rental receipts tax, but a collision-damage waiver was not insurance. The customer paid a service charge to waive the standard deductible on the rental company's collision coverage, so the invoice's collision-protection charge was correctly taxed.

Apply this to your situation

This page answers the general question as of 1979. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1979
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a January 29, 1979 taxpayer-response letter based on the submitted rental agreement and invoice, which are not included in STAR's text. The distinction between insurance and collision-damage waivers, gross rental receipts, separately stated charges, deductible waivers, rental contracts, and tax treatment may have changed. STAR documents may no longer represent current policy even when not marked superseded. Customer and company details are redacted. This summary is informational only and is not legal, insurance, or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The separately labeled collision-protection charge was taxable because the agreement identified it as a collision-damage waiver, not insurance.

The letter distinguished an actual purchase of insurance coverage from a service charge that waived the standard deductible on collision insurance carried by the rental company.

Historical gross rental receipts tax did not apply to separately stated insurance fees. It did apply to the collision-damage waiver on this invoice.

What this means for you

The label alone did not control. The agreement's description of what the customer received determined whether the charge was insurance or a taxable waiver service.

Common questions

Q: Were separately stated insurance charges taxable?
A: No, under this historical letter.

Q: Was the collision-damage waiver insurance?
A: No.

Q: Was the collision-protection charge correctly taxed?
A: Yes.

Citations and references

  • No statute or rule was cited in the letter.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 29, 1979

Dear Sir:

Thanks for sending us a copy of your daughter's car rental agreement with
XYZ RENTAL AND LEASING CO.

After reviewing the invoice, it appears that sales tax was correctly com-
puted on the amount labeled "Collision Protection Charge."

As I indicated to you over the telephone, while it is correct that motor
vehicle gross rental receipts tax is not due on separately stated fees or
charges for insurance, a charge identified as "collision damage waiver"
is not considered insurance and therefore is taxable. In the one case, a
customer actually purchases insurance coverage; in the other case, the
customer exercises the option of paying a service charge to waive the
standard deductible on the collision insurance carried by the company.

The "Full Collision Waiver" initialed in the lower left side of XYZ's
rental agreement clearly identifies the "Collision Protection Charge"
as a "collision damage waiver" charge.

The distinction between these two types of charges is a technical one
made by the insurance industry and is probably not one most people would
make without having it explained. I can also appreciate your desire to
pay only that tax for which you are properly liable.

I hope that this explanation makes the taxability of the "Collision Pro-
tection Charge" more understandable to you. If you have any further
questions, please don't hesitate to call us toll free from anywhere in
Texas at 1-800-252-5555.

Yours very truly,
Victoria Reed Bailey
Motor Vehicle Sales Tax Division

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