A tow-and-storage contractor that sells seized and salvage motor vehicles at auction for the U.S. Marshals Service asks whether, after the January 1, 1996 law change, it must collect sales tax on those sales.

Plain-English summary

A corporation under contract with the U.S. Marshals Service to tow, store, and dispose of seized motor vehicles in Texas asked the Comptroller about its sales tax obligations after a change in the law took effect January 1, 1996. The company sells these vehicles at open, verbal public auctions; the government sometimes designates certain vehicles to be sold as salvage, to licensed salvage dealers only.

The Comptroller explained that, effective January 1, 1996:

• Licensed motor vehicle dealers (licensed through the Texas Department of Transportation) must collect and remit motor vehicle sales tax on taxable sales of a motor vehicle.
• Because the company was acting as an agent for the U.S. Marshals Service, which is not a licensed dealer, the company itself was not obligated to collect motor vehicle sales tax on the vehicle sales. Instead, it had to give the purchaser the paperwork needed to transfer title, so the purchaser could pay the tax directly.
• Salvage vehicles are no longer treated as "motor vehicles" for tax purposes as of that date — they're taxed the same as any other tangible personal property. So for any salvage vehicles sold, the seller must either collect limited sales tax or obtain a resale certificate from the purchaser.

What this means for you

Businesses that tow, store, or auction seized/salvage vehicles

If you sell salvage or total-loss vehicles, remember that (since January 1, 1996) those sales are treated as sales of tangible personal property, not motor vehicle sales — you need to collect limited sales tax or get a resale certificate, not motor vehicle sales tax.

Agents selling vehicles on behalf of a government entity

If you're acting as an agent for a non-dealer government entity (like the U.S. Marshals Service) rather than as a licensed motor vehicle dealer yourself, you may not be the one obligated to collect motor vehicle sales tax — but you still need to provide the purchaser with the paperwork needed to transfer title so the purchaser can pay the tax.

Licensed motor vehicle dealers

You remain responsible for collecting and remitting motor vehicle sales tax on taxable motor vehicle sales — this letter doesn't change that requirement; it only clarifies that salvage vehicles are excluded from "motor vehicle" tax treatment.

Common questions

Q: Are salvage or total-loss vehicles still taxed as "motor vehicles" in Texas?
A: No. Effective January 1, 1996, a salvage vehicle is no longer considered a motor vehicle for tax purposes — it's treated and taxed the same as any other tangible personal property.

Q: What tax applies to the sale of a salvage vehicle now?
A: The seller must collect limited sales tax, or obtain a resale certificate from the purchaser (e.g., a licensed salvage dealer buying for resale).

Q: Does an agent selling vehicles for the U.S. Marshals Service have to collect motor vehicle sales tax?
A: Not in the situation described in this letter — because the agent is not a licensed motor vehicle dealer and the U.S. Marshals Service is not a licensed dealer either, the agent isn't obligated to collect the motor vehicle sales tax. It must still give the purchaser the paperwork needed to transfer title and pay the tax.

Q: Can I rely on this letter for my own vehicle-disposal business?
A: No. This opinion is based on the facts presented to the Comptroller; if the facts are different, the opinion could change, and it binds the Comptroller only as to the taxpayer it was issued to.

Citations and references

No specific statutes or administrative rules are cited by number in the letter itself; it references "a recent change in the tax law" effective January 1, 1996, and encloses an (unattached) tax bulletin describing the change.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9602L1397G09

Original ruling text

NOTE: This document is also indexed as a motor vehicle tax document as STAR 9602001L.

February 26, 1996

Dear**:

I have received your letter requesting tax information.

Facts: Your corporation is under contract with the U.S. Marshals Service to
tow, store and dispose of seized motor vehicles in Texas. You have been
performing this function for approximately 8 years. The vehicles are sold by
open, verbal auction methods to the public. The government determines some
vehicles to be sold as salvage to licensed salvage dealers only.

Question: Since the recent change in the tax law regarding tax collection
(effective January 1, 1996), you ask what your obligation is to collect
sales tax on the sale of these vehicles.

Response: I am enclosing a copy of a tax bulletin regarding these specific
changes. It outlines the tax collection responsibilities of a licensed motor
vehicle dealer, as well as anyone selling salvage vehicles. Effective January
1, 1996, all licensed motor vehicle dealers (licensed through the Texas
Department of Transportation) are required to collect and remit motor vehicle
sales tax on taxable sales of a motor vehicle. If you are acting as an agent
for the U.S. Marshals Service (who is not a licensed dealer), you would not be
obligated to collect the motor vehicle sales tax on the motor vehicle sales.
You would be required to provide to the purchaser the paperwork needed for the
purchaser to transfer title and pay the tax.

Also effective January 1, 1996, a salvage vehicle is no longer considered a
motor vehicle. It is treated and taxed the same as any other tangible personal
property. For any salvage vehicles you sell, you must collect limited sales
tax or secure a resale certificate from the purchaser.

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

If you have any questions, please don't hesitate to call one of our tax
specialists toll free at 1-800-252-1382. The direct number is 512/463-4600.
You may also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Joan Hale
Tax Policy Division