Could a used-car dealer buy a customer's vehicle tax-free and finance its resale to that same customer?

Plain-English summary

A licensed used-car dealer could buy a customer's vehicle for $500 without tax if the dealer held it strictly for resale and made no other use of it.

But the dealer's resale of that vehicle to the same customer for $700 was a taxable transaction. The result followed the dealer's books showing a purchase and a later sale, even though the buyer was the original owner.

Because the dealer financed the resale through an installment contract and lien, it had to obtain a seller-financing dealer permit, collect tax on the payments, and report and remit that tax to the Comptroller.

STAR's subject metadata mentions an October 1, 1993 effective date, but the ruling body does not discuss or decide that date.

What this means for you

Used-car and seller-financing dealers

Tax-free acquisition for resale did not make the later financed retail sale exempt.

Dealership accountants

The books, installment contract, lien, and payment-by-payment tax records supported the historical treatment.

Common questions

Q: Was the dealer's $500 purchase taxable?

A: No, if the vehicle was held strictly for resale.

Q: Was the $700 resale to the same person taxable?

A: Yes.

Q: Did the body establish an October 1, 1993 effective date?

A: No.

Citations and references

• The letter did not identify a statute or administrative rule by 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/9703407L

Original ruling text

March 5, 1997

Dear ***:

Thank you for your letter requesting tax information.

Facts: You are applying for a used car dealer license. You ask for any tax
consequence in the following situation: Customer comes in with a used car to
sell. You buy customer's car for $500. You get the original title and a bill
of sale and all paperwork needed. You then resell the vehicle back to the same
customer for $700. You get an installment contract from customer and file a
lien on the vehicle. Customer makes installment payments to you for the
vehicle.

Response: A licensed car dealer may purchase a motor vehicle for resale
without incurring a tax liability. The vehicle must be held strictly for
resale and no other use made. In the scenario you described, the dealer may
purchase the vehicle without a tax consequence. If your books reflect a
purchase by you and a subsequent sale to your customer, the sale to your
customer is a taxable transaction (even if it is the same customer). As a
dealer financing the sale of a motor vehicle, you would be required to secure a
permit as a seller-financing dealer, collect tax on the payments, and report
and remit the tax to this office.

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 do not 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