Was a dealer's $150-per-month employee use of inventory cars with dealer plates a taxable motor vehicle rental?

Plain-English summary

A dealer's employee-car program was not a taxable motor vehicle rental because the employees lacked exclusive use and the fee did not resemble market rent.

Employees paid $150 per month to drive new inventory cars until each reached 8,000 miles. The dealer could recall a car at any time for demonstration or sale, defeating the historical rental definition's “exclusive use” requirement.

The memo also said the charge bore no reasonable relationship to true rental value. For dealer plates, § 152.027 imposed a stated $25 use tax in lieu of other Chapter 152 tax, and Article 6686 prohibited plates on service or work vehicles and commercial vehicles carrying a load. The memo found the employee-driven cars were neither and recommended no assessment.

What this means for you

The dealer's recall right and the nonmarket fee were central. A program giving employees exclusive possession or involving service, work, or load-carrying vehicles would present different facts.

Common questions

Q: Why was use not exclusive?
A: The dealer could recall the car for demonstration or sale at any time.

Q: What did employees pay?
A: $150 per month.

Q: What did the memo recommend?
A: No assessment.

Citations and references

• Texas Tax Code § 152.027 — historical dealer-plate use tax
• Texas Revised Civil Statutes art. 6686 — historical dealer-plate restrictions

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8410L0596C13

Original ruling text

DATE: October 31, 1984

TO: Curt Swenson

FROM: Martin Cherry

SUBJECT: **

You indicated that Audit has requested your advice on whether to make
an assessment in the following situation. A dealer allows employees
to drive new automobiles for a fee of $150 per month until such time
as 8000 miles have been accumulated on the car. At that point the
car is returned to the dealership and another car takes its place for
the same monthly fee if the employee so chooses.

The question is whether this transaction is a rental under the Motor
Vehicle Tax Law. I have discussed the situation with Wade Anderson
and we came to the conclusion that this is not a taxable transaction.
First of all, a rental is defined to be an agreement in which "the
exclusive use" is given in exchange for consideration. As you and I
discussed this is not an exclusive situation, since the dealership
can call the car back for demonstration or sale at any time. Further,
the amount paid bears no reasonable relationship to the value of
renting such a car. A true rental transaction would require payment
of substantially more money.

Concerning the metal dealer plate angle of the question, sec, 152.027
provides that the $25 use tax is "in lieu of any other tax imposed by
this chapter." Clearly, if no charge was made at all, there would be no
question but that the dealership's use of metal tags was appropriate on
cars which its employees were driving. Article 6686 provides that the
use of dealer license plates is prohibited "on service or work vehicles
or on commercial vehicles carrying a load." These vehicles are clearly
not commercial vehicles carrying a load, nor do I believe that they are
service or work vehicles. Thus it is within the scope of that
provision for the employees to be driving these cars. On the basis of
all of these considerations, we have concluded that no assessment should
be made in connection with these charges for these uses of cars by
employees of the dealership.