When were vehicle and equipment leases to federal banks or other governmental organizations exempt from Texas tax?

Plain-English summary

A lessor could historically acquire a motor vehicle tax-free for lease to a public agency only if the vehicle was titled in the lessor's name, leased to a qualifying public agency, and operated with exempt license plates. Standard plates made the vehicle taxable.

The lessor then paid motor vehicle tax on the vehicle's book value when the lease ended.

The letter defined public agencies to include Texas state and local bodies, political subdivisions, and unincorporated federal agencies and instrumentalities. Government funding alone did not make an organization a public agency. It specifically listed the Federal Intermediate Credit Bank, Federal Land Bank, Federal Credit Union, Federal Reserve Banks, and “Federal Home Loan Mortgage, Inc.” as qualifying institutions.

The letter emphasized that motor vehicle exemptions under Chapter 152 and equipment-lease exemptions under Chapter 151 were different. For non-vehicle equipment leased to a governmental agency, § 151.309 and Rule 3.322 applied. The lessee furnished an exemption certificate, and the lessor could give its vendor a resale certificate when buying equipment for lease.

The historical motor vehicle claim was made on Form 130-U through the county tax assessor-collector, including the lessee's name and address on item 14.

What this means for you

Vehicle lessors

Qualifying lessee status was only one condition. Title ownership and exempt plate display also mattered.

Equipment lessors

Do not assume the motor vehicle rules apply to ordinary equipment. The letter used a separate Chapter 151 exemption and certificate process.

Federally connected organizations

Federal funding alone was insufficient. The entity had to fit the public-agency definition.

Common questions

Q: Did standard license plates preserve the vehicle exemption?
A: No.

Q: When did tax become due after an exempt vehicle lease?
A: At lease termination, on book value under the historical rule.

Q: Were Chapter 151 and Chapter 152 exemptions identical?
A: No.

Citations and references

• Texas Tax Code § 152.083 — historical public-agency vehicle lease exemption
• Texas Tax Code § 151.309 — governmental-agency equipment lease exemption
• Texas Comptroller Rule 3.322 — exempt governmental organizations
• Texas Comptroller Rule 3.294 — rentals and leases of taxable items
• Form 130-U — historical vehicle title and exemption form

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/8504L0653C09

Original ruling text

April 4, 1985

Dear ***:

Thank you for your letter of March 28, 1985, regarding how the Texas Limited
Sales and Use Tax and the Texas Motor Vehicle Sales and Use Tax may apply to
operating leases of equipment and motor vehicles to "tax exempt entities -
governmental organizations," specifically federal banks.

Motor vehicles are covered under chapter 152 of the Texas Tax Code.

A lessor/purchaser acquiring a motor vehicle to be leased to a public agency is
not required to pay motor vehicle tax as long as the vehicle is:

(1) titled in the lessor's name,

(2) leased to a public agency, and

(3) operated with exempt license places. (Vernon's Texas Codes Annotated Sec.
152.083)

The lessor/purchaser is required to pay motor vehicle tax on the book value of
the vehicle at the termination of the lease.

To qualify for the exemption, an exempt license plate must be displayed. The
use of a standard license plate subjects a vehicle to tax.

For motor vehicle tax, a public agency is defined as a department, commission,
board, office, institution or other agency of the State of Texas or of a
county, city, town, school district, hospital district, water district, or
other special district, authority or political subdivision created by or
pursuant to the constitution or the statutes of Texas. The term includes the
unincorporated agencies and instrumentalities of the United States. An
organization is not a public agency simply because it is funded by the state or
federal government. The following institutions are qualified for this exemption

Federal Intermediate Credit Bank,
Federal Land Bank,
Federal Credit Union,
Federal Reserve Banks, and
Federal Home Loan Mortgage, Inc.

Contact us if you are not sure about the exempt status of your motor vehicle
lessee. Organizations exempt under motor vehicle tax are not the same as those
exempt under the limited sales tax, (chapter 151 of the Texas Tax Code).

Put the name and address of the lessee on last line of item 14 of the
application for Texas Certificate of Title/Seller, Donor or Trader's Affidavit,
Form 130-U, copy enclosed. All payment of motor vehicle tax, or claims for
exemption are handled by filling out this form and giving it to the county
tax-assessor's office.

Section 151.309 of the Limited Sales and Use Tax law authorizes the exemption
for the leases of equipment to governmental agencies. Sales Tax Rule 3.322,
Exempt Organizations, (enclosed) further defines exempt governmental agencies.
If you want to verify the exempt status of a particular lessee, you may call
our Taxpayer Assistance section (512/475-1931, or 1-800-252-5555 from anywhere
in Texas) for an immediate answer. The lessee would need to give a properly
executed exemption certificate to you in order to claim the exemption, and you
may give a resale certificate to the vendor when you purchase equipment that
will be leased. You would report receipts from the lease in "Total Sales" of
your sales tax return and take those receipts as a deduction when calculating
"taxable sales."

I have enclosed the rule mentioned, copies of resale and exemption
certificates as well as rule 3.294, Rental and Leases of Taxable Items.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Administration Division