Were dealer preparation and documentary fees included in the Texas motor vehicle tax base?

Plain-English summary

A dealer preparation or make-ready charge was taxable, but a documentary fee for post-sale title and registration work was not part of the motor vehicle tax base.

The make-ready work—manufacturer-required inspection, fluid checks, adjustments, lubrication, washing, and waxing—was integral to the sale. Section 152.002(a)(2) included material, labor, or service cost in total consideration.

Registration and title application were the buyer's responsibility after the sale. A dealer charging to perform those duties acted like another title service, so the documentary fee was excluded.

What this means for you

The timing and nature of the service mattered: integral pre-sale preparation was taxable, while a distinct post-sale buyer service was not under this memo.

Common questions

Q: Was dealer prep taxable?
A: Yes.

Q: Was the documentary fee taxable?
A: No under the stated post-sale facts.

Citations and references

• Texas Tax Code § 152.002(a)(2) — total consideration included material, labor, or service cost

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8304L0534C04

Original ruling text

Date: April 12, 1983

TO: Motor Vehicle Taxpayer Service Section

FROM: Tom Soto

Via: Richard Montgomery

Subject: Total Consideration - Memo from Joan Sims Dated April 5, 1982

A dealer preparation or make-ready charge is subject to the motor vehicle sales
tax.

The "dealer prep" or "make-ready" charge is made by a franchised dealer in
order to cover the cost of making an inspection required by the manufacturer.
The service check-list includes checking fluid levels (oil, transmission,
coolant, etc.), making adjustments (doors, windows, belts, etc.) and checking
for proper lubrication (wheel bearings, etc.). The dealership may also wash
and wax the vehicle as part of the inspection and service.

The service check is an integral part of the sale and if a charge is made it is
part of the "total consideration" under section 152.002 (a)(2), "the cost of
material, labor or service (emphasis added), and is taxable.

A "documentary fee", on the other hand, is for a service performed after the
sale of the vehicle is completed. The registration and application for title
is the responsibility of the owner (buyer). If a dealer makes a charge for
performing those duties for the buyer, he is no different from any other title
service that makes a charge for performing the service. The documentary fee is
not part of the total consideration.

Date: April 12, 1983

TO: Tom Soto, Motor Vehicle Tax Division

FROM: Joan Sims, Motor Vehicle Tax Division

SUBJECT: Dealer Prep Charges

For motor vehicle tax purposes, is the dealer prep charge part of the total
(taxable) consideration?