Was a parent's transfer of motor vehicles to a newly formed wholly owned subsidiary subject to Texas motor vehicle tax?

Plain-English summary

The Texas Comptroller treated a parent's transfer of motor vehicles to a newly formed wholly owned subsidiary as a change in the method of doing business rather than a taxable transaction.

That result depended on two conditions stated in the letter: the subsidiary gave no consideration other than stock, and the parent had already paid the proper Texas sales or use tax on its purchase or use of the vehicles.

If the parent had not paid the proper Texas tax, motor vehicle tax became due when the vehicles were transferred to the subsidiary.

What this means for you

Corporate tax departments

The historical formation-stage treatment was conditional, not a blanket exemption for transfers among related corporations.

Fleet managers and accountants

Prior Texas tax payment and the consideration given on transfer were decisive facts.

Common questions

Q: Did the wholly owned relationship alone make the transfer nontaxable?

A: No. The letter also required formation-stage facts, no consideration other than stock, and proper prior Texas tax payment.

Q: What if the parent had not paid the proper Texas tax?

A: Motor vehicle tax was due when the vehicle was transferred.

Citations and references

• 34 Tex. Admin. Code Rule 3.64(b)(2) — cited in the letter for a parent's transfer to a subsidiary upon formation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9703451L

Original ruling text

March 31, 1997

Dear ***:

Thank you for your request for motor vehicle tax information.

Facts: Corporation P is a foreign corporation without any offices in Texas.
Corporation P operates in Texas solely through its subsidiaries located in
Texas. Corporation P will form a new subsidiary Corporation SM, a Texas
corporation, and transfer certain assets, including at least one (and maybe
more) motor vehicle to the new Corporation SM. Corporation P will own 100% of
the stock of Corporation SM. You ask if this transfer of a motor vehicle(s) is
exempt or taxable.

Response: You made reference to Rule 3.64(b)(2) that refers to the transfer of
a motor vehicle from a parent corporation upon formation of a subsidiary
corporation. Tax is not due because the formation of the subsidiary is
considered just a change in the method of doing business, and the transfer of a
motor vehicle from the parent at this point is not a taxable transaction, as
long as no consideration (other than stock) is given. If the parent has paid
the proper tax for its purchase or use of the vehicle in Texas, then no
additional tax is due to Texas from the newly formed subsidiary upon transfer.
If the parent has not paid the proper sales or use tax in Texas, then motor
vehicle tax is due when it is transferred to the subsidiary.

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