Who owed Texas use tax when an out-of-state leased vehicle was brought into Texas?

Plain-English summary

The Texas Tax Administration Division said the lessee was responsible for use tax when a vehicle leased outside Texas was brought into the state for use.

The historical tax was 6% of the vehicle's original purchase price and was paid to the county tax assessor-collector at registration. Texas allowed credit for tax legally due and paid to another state on the same vehicle when supported by a state receipt or, where dealers collected the tax, a dealer receipt.

The letter did not allow an immediate credit for another state's tax on later lease payments. It said such a credit might be available when title passed to the lessee at the end of a financing lease for tax paid on lease payments after the vehicle entered Texas.

What this means for you

Vehicle lessees

Under the letter, the person bringing the leased vehicle into Texas bore the historical use-tax liability.

Lessors and fleet managers

Keep proof of tax legally due and paid to another state, but verify current credit rules, tax base, rate, and registration procedures.

Common questions

Q: What was the historical tax base?

A: The out-of-state lessor's original purchase price.

Q: Did Texas credit another state's tax?

A: Yes, for tax legally due and paid on the same vehicle, with proof. The letter treated tax on later lease payments differently.

Q: Did the letter find a grandfather clause?

A: No. It recorded that question but did not identify or apply one.

Citations and references

• The letter cited no statute or administrative rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9104L1107G11

Original ruling text

April 30, 1991

Dear **:

Thank you for your recent letter regarding motor vehicle tax in
Texas.

You asked about a grandfather clause applicable to sales/use tax
on motor vehicle leases. Lease payments on leases of more than
180 days are not taxed in Texas. The tax rate in effect at the
time the vehicle enters Texas applies to the use tax. Motor
vehicle sales tax on leased vehicles is the responsibility of the
title owner and is paid to the county tax assessor/collector at
the time of registration. The tax rate is 6% of the purchase
price.

When a vehicle leased outside Texas is brought into this state for
use, six percent motor vehicle use tax is due. Texas will credit
tax legally due and paid to another state against Texas use tax on
the same vehicle. Proof of payment to the other state is required
in the form of a state receipt or automobile dealer's receipt in
states where dealers are required to collect the tax. Credit is
not allowed at this time for tax paid to another state on
subsequent lease payments. However, at the end of a financing
lease, when the title passes to the lessee, credit may be allowed for
any tax which was paid on lease payments occurring after entry into
Texas. The use tax is 6% of the original purchase price of the
vehicle and is the responsibility of the lessee bringing the
vehicle into Texas. The tax is paid to the county tax
assessor/collector at the time of registration.

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 additional information, you may
call me toll free at 1-800-5331-5441, extension 5-0330. The
regular number is 512/463-4600, or write me at Tax Administration
Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division