How did Texas tax a leasing company's purchase of another lessor's vehicles, loans, and lease contracts?

Plain-English summary

The Texas Comptroller divided a leasing-company asset purchase into several categories.

Taking over financing on vehicles already titled to their purchasers was merely a change of lienholder, not a taxable retail sale.

Apportioned interstate tractors and trailers could transfer without motor vehicle sales tax by using the IMC permit number of the carrier operating each unit.

For other vehicles, a licensed motor vehicle dealer could take title for resale without tax only if it made no taxable use. Re-leasing a unit was an example of taxable use; an unlicensed buyer also owed tax. The transferred lease contract itself was an intangible and was not subject to motor vehicle sales tax.

What this means for you

Vehicle leasing companies and fleet acquirers

The historical result depended on what asset or interest actually transferred and what the buyer did with each vehicle.

Interstate motor carriers

The letter tied apportioned-unit treatment to the operating carrier's IMC permit number.

Licensed dealers

Resale treatment was lost if the buyer re-leased or otherwise made taxable use of the vehicle.

Common questions

Q: Was taking over vehicle financing taxable?

A: No. It was a change of lienholder.

Q: Was the transfer of a lease contract taxable as a vehicle sale?

A: No. The letter treated the contract as an intangible.

Q: Did re-leasing preserve resale treatment?

A: No. Re-leasing was taxable use.

Citations and references

• The letter referred to the Interstate Motor Carrier statute and IMC permit procedure without giving a section 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/9610132L

Original ruling text

October 10, 1996

Dear ****:

I have received your letter requesting tax information.

Facts: Your company will purchase some of the assets of another leasing
company (Company X). All of the assets are registered motor vehicles,
including passenger cars, tractor trailer trucks, and interstate tractor
trailer trucks. Most of the vehicles are titled to the lessor (Company X) and
leased, without an operator, on long-term leases (over 12 months). The
remainder are titled to the purchaser and financed by Company X (who is shown
as lienholder). I understand that all these vehicles are titled in Texas prior
to your purchase.

Question: You ask what the tax consequences will be.

Response: For the vehicles that are titled to the purchaser and your company
is taking over the financing, no tax is due. This is not a retail sale; it is
merely a change of lienholder.

Apportioned interstate units are taxed under the Interstate Motor Carrier
statute. The tax is the responsibility of the carrier. For the apportioned
interstate trucks and trailers, each unit may be transferred by using the Texas
interstate motor carrier (IMC) tax permit number of the carrier under whose
authority the vehicle is running; the number is shown under "exemption" on the
motor vehicle tax statement portion of the title application, and no motor
vehicle sales tax would be due.

For the remaining vehicles, your purchase may qualify as a sale for resale. If
your company does not make a taxable use of the vehicle (it was Company X and
not your company that made the taxable use by entering into the lease
contract), your company may take title for resale without incurring a tax
liability if your company is a licensed motor vehicle dealer. If your company
is not a licensed dealer or makes a taxable use of the vehicle (by re-leasing
the unit, for example), your company would owe motor vehicle sales tax. The
tax is 6-1/4% of the purchase price. The transfer of the lease contract from
Company X to your company is the transfer of an intangible (the contract) and
not subject to motor vehicle sales tax.

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 me toll free at
1-800-531-5441, extension 3-4663. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,
Joan Hale
Tax Policy Division