Can a Texas motor vehicle rental company show property tax, title fees, and registration fees as separate reimbursement line items on customer invoices?

Plain-English summary

A motor vehicle rental company proposed a way to pass its county property tax burden on to renters: have customers pay the property tax on the rented vehicles directly. The Comptroller's Tax Policy Committee flagged a constitutional problem — under the Texas Constitution, only counties may collect county property tax, so letting a private rental company collect it directly from customers as "tax" would likely require a constitutional amendment.

The Comptroller offered a workable alternative instead. A rental company can already show a line on its invoice such as "reimbursement for property taxes - $x," as long as the invoice makes clear the amount is not tax owed by the customer but reimbursement of a cost the company incurred. In that case the Comptroller would not treat the collected amount as sales tax that must be remitted to the state as such. The tradeoff: that reimbursed amount still has to be folded into the company's own taxable rental receipts (its tax base), so it doesn't escape sales tax — it's just not itself labeled or collected as a separate tax. The letter notes title and vehicle registration/license fees could be passed through to customers the same way, without needing new legislation.

What this means for you

Motor vehicle rental companies

If you want to recoup county property tax, title fees, or registration fees on your rental fleet from customers, you don't need special legislation to do it — but you cannot bill it or collect it as if it were a tax owed by the customer. Label it clearly as a cost reimbursement (e.g., "reimbursement for property taxes"), and remember that reimbursed amount is still part of your taxable rental receipts for sales tax purposes.

Accountants and tax professionals advising rental fleets

Watch the invoice language closely: a reimbursement line item that reads like a passed-through tax collected from the customer risks being recharacterized under Sec. 111.016, Tex. Tax Code, or an unjust-enrichment theory, as amounts collected as tax that must be remitted to the state. Framing it as reimbursement for the company's own cost keeps it out of that category, but the amount must still be included in the rental company's tax base when calculating sales tax due.

Common questions

Q: Can a rental car company collect county property tax directly from customers as a tax?
A: No. The Comptroller's Tax Policy Committee concluded that only counties can collect county property tax under the Texas Constitution, so a company collecting it directly as tax would likely need a constitutional amendment.

Q: So how can a rental company recover that cost from customers?
A: By showing it as a reimbursement line item on the invoice — for example, "reimbursement for property taxes - $x" — as long as the invoice makes clear the customer doesn't owe it as tax, but is reimbursing the company's cost.

Q: Does that reimbursed amount escape sales tax?
A: No. The amount collected as reimbursement still has to be included in the company's tax base for sales tax purposes.

Q: Does this also cover title and registration/license fees?
A: Yes — the letter says these could be handled in a similar reimbursement-line-item manner without new legislation.

Citations and references

Statutes cited:

• Sec. 111.016, Tex. Tax Code (referenced regarding amounts collected as tax that must be remitted to the state)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1217E06

Original ruling text

December 11, 1992

Dear ***:

You had asked that we consider your proposal to have companies which rent
motor vehicles collect the property tax on their vehicles from customers.
This issue was brought before the Tax Policy Committee. The committee
was concerned about several aspects of the proposal.

The first was that it might not be constitutional. Under the Texas
Constitution, the counties are the only entities allowed to collect the
county property tax. Essentially, your proposal would allow the
companies to collect the county tax, and this would probably require a
constitutional amendment.

Some of your concern was that if the companies tried to pass on the tax
on their bill without legislation, we would apply Sec. 111.016, Tex. Tax
Code or an unjust enrichment theory. While your concerns are valid, there
is no reason why the companies could not presently show a portion of the
property taxes on their invoices provided the invoices reflected that the
tax was not owed by the customer but was simply reimbursement for cost to
the company. Therefore, if a company's invoice had a line which read
"reimbursement for property taxes - $x," we would not argue that the
amount was collected as tax and should be paid to the state. However,
the amount collected would have to be included in the tax base. As regards
title and license fees, these could be handled in a similar manner without
legislation.

I hope this satisfactorily answers your questions.

Sincerely,

Michael D. Doyle
Director
Tax Administration