When did Texas require a seller-financing dealer to pay all remaining motor vehicle tax after transferring payment rights?

Plain-English summary

This internal Texas Tax Policy memo addressed a seller-financed retail vehicle sale. After the sale, an investor funded 60% of the financed amount and obtained the right to receive the buyer's payments through the dealer as collector.

The memo said that transfer of payment rights satisfied Texas Tax Code § 152.047(g), despite the investor's recourse to the dealer if the buyer failed to pay.

The dealer therefore had to report and pay all tax remaining on the unreported consideration in the next reporting period after the investor obtained the payment rights.

What this means for you

Seller-financing dealers and auto-finance investors

Transferring the payment stream accelerated the dealer's unpaid tax under the historical memo.

Audit professionals and dealership accountants

The memo treated the right to receive payments as decisive even though the dealer still collected them and bore recourse risk.

Common questions

Q: Did recourse to the dealer prevent acceleration?

A: No.

Q: When was the remaining tax reported?

A: In the next reporting period after the investor obtained payment rights.

Citations and references

• Texas Tax Code § 152.047(g) — cited for accelerated tax after factoring, assigning, or otherwise transferring payment rights.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9603L1408D01

Original ruling text

DATE: March 13, 1996

TO: Mike Wallace, San Antonio Audit

FROM: Curt Swenson, Tax Policy

SUBJECT: **. - Seller-Financed Sales, Sale of Note

Section 152.047(g) of the Tax Code provides that if
a seller factors, assigns, or otherwise transfers the right to receive
payments, all unpaid tax is due on the total consideration not reported at the
time the agreement is factored, assigned, or otherwise transferred.

It is apparent that COMPANY A has sold the vehicle
to the retail purchaser. There is a sales/installment agreement between the
two. After the sale the investor then funds COMPANY A 60% of the financed
amount. The investor will then receive the payments (through COMPANY A as
collector) made by the retail purchaser. It is understood that the investor
has recourse to COMPANY A if all payments are not made. The recourse element
appears to be industry standard.

The investor now has the right to receive payments.
For that reason alone and perhaps others the condition set out in Section
152.047(g) has now been met and the remainder of the tax is due from COMPANY A
and should be reported and submitted in the next report period following the
investors right to receive the payments.

NOTE: Previous Accession Number 9603159L