Must a Texas bank or lending institution collect sales tax when it sells repossessed property?

Plain-English summary

The Texas Comptroller reminded banks and other lending institutions that sales of repossessed property were subject to sales tax. Tax still had to be charged even if sales tax was paid when the property was originally purchased new.

The lenders could not use an occasional-sale exemption for repossessed property. The notice identified two exclusions: repossessed real property, which was not subject to sales tax, and motor vehicles, on which tax was paid when registered.

What this means for you

Banks and other lenders

Under this 1988 notice, taking property through repossession did not make its later sale tax-free. A lender selling taxable repossessed goods had to collect sales tax.

Buyers of repossessed property

Prior tax paid when an item was new did not eliminate tax on the lender's resale. Real property and motor vehicles followed the different treatment stated in the notice.

Common questions

Q: Is sales tax due if tax was already paid when the item was new?
A: Yes. The notice expressly says the resale is taxable despite that prior payment.

Q: Can a bank claim an occasional-sale exemption?
A: No. The notice says banks and lending institutions are not entitled to occasional tax-free sales of repossessed property.

Q: Are repossessed land and motor vehicles included?
A: No. The notice says real property is not subject to sales tax and motor-vehicle tax is paid at registration.

Q: Can I rely on this as a taxpayer-specific letter ruling?
A: No. It is a general notice and may no longer reflect current law or Comptroller policy.

Citations and references

The notice states the tax treatment but does not cite a specific Tax Code section or Comptroller rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8806L0895E10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller June 21, 1988

Gentlemen:

I just want to take a minute of your time to remind you that under
the law, the sale of repossessed property is subject to sales tax.
The tax must be charged even though it was paid when the item was
purchased new.

Banks and other lending institutions are not entitled to make an
occasional tax free sale of repossessed property.

You are not required to charge sales tax when you sell repossessed
real property and motor vehicles. Sales tax is paid on motor vehicles
when they are registered. Real property is not subject to sales tax.

If you have any questions please feel free to call or write us. Our
toll free number is 1-800-252-5555. The regular number is (512)
463-4600.

Sincerely,
BOB BULLOCK
Comptroller of Public Accounts