Ezel / Tax Rulings / TX
TX 9306L1241A03 Motor Vehicle Tax 1993-06-09

Could a Texas vehicle rental company pass county property tax to customers, and was the reimbursement subject to rental tax?

Short answer: The rental company could recover the cost, but could not tell customers they owed county property tax because only counties collected that tax. Any reimbursement was part of the rental company's taxable receipts. The invoice could separately state 'reimbursement for property taxes' if it made clear the customer did not owe the tax directly.

Apply this to your situation

This page answers the general question as of 1993. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1993
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Tax Administration letter issued on one 1993 vehicle-rental property-tax reimbursement practice. The operative body discusses county property tax only; STAR's broader subject also mentions title and registration fees, but the body does not decide those charges. It predates modern Private Letter Ruling reliance terms and cannot bind the Comptroller for unrelated taxpayers. Property-tax authority, invoice language, reimbursements, and rental receipts may have changed. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Texas Tax Administration Division said only counties could collect county property tax. A vehicle rental company could not label its charge as property tax owed by the customer.

Because property tax was the rental company's own business expense, an amount recovered from the customer became part of the taxable vehicle rental receipts.

The company could separately disclose the amount if the invoice clearly called it a "reimbursement for property taxes" and made clear the customer did not owe the tax directly.

STAR's subject mentions title and registration fees, but the published body does not decide those charges.

What this means for you

Vehicle rental companies

The historical letter permitted transparent reimbursement wording but did not remove the charge from the rental tax base.

Rental fleet accountants

Treat the property tax as the company's expense and the customer reimbursement as rental receipts under the letter.

Common questions

Q: Could the company call it customer property tax?

A: No.

Q: Could the company separately state a reimbursement?

A: Yes, with clear wording.

Q: Was that reimbursement subject to rental tax?

A: Yes.

Citations and references

  • The letter referred to the Texas Constitution without identifying a section.

Source

Original ruling text

June 9, 1993

Dear ***:

This is in response to your letter dated April 2, 1993, regarding taxes
and other charges collected by motor vehicle rental companies in Texas. I
am sorry that it has taken so long for your letter to reach the proper
agency.

Under the Texas Constitution, only the counties are allowed to collect
the county property tax. Rental companies cannot collect county property
tax from customers as a "tax". Since the property tax is a cost of doing
business to the rental companies, the tax becomes a part of the cost to
rent the vehicle and is subject to the gross rental receipts tax.
Generally, a business will take into consideration all expenses before
determining a selling price and include all expenses as part of a
lump-sum charge.

Rental companies may show a portion of their property taxes on their
invoices provided the invoices reflect that the tax was not owed by the
customer but was simply a reimbursement for cost to the company. A rental
company's invoice should have a separate line which clearly reads
"reimbursement for property taxes - $x".

This opinion is based on the facts presented. Different facts, though
similar, may result in different answers. If you have any questions or
need more information, please write or call me at 1-800-531-5441,
extension 5-0330, or 512/463-4600.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9307048L

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