Did buyers have to pay Texas vehicle tax again when a failed dealer collected the tax but did not remit it or transfer title?

Plain-English summary

The Texas Comptroller said vehicle buyers did not have to pay motor vehicle sales tax again when they could document payment to a dealer that later went out of business and failed to transfer title or remit the tax.

The policy covered a dealer that became bankrupt, disappeared, or otherwise ceased business. It followed a legislative change requiring purchasers to pay tax to the selling dealer.

For the transactions discussed with the finance company and transportation-agency staff, titles could transfer without additional tax as long as some evidence showed tax had been paid to the dealer.

What this means for you

Vehicle buyers

Preserve any invoice, receipt, financing record, or other evidence that the dealer collected the tax.

Auto finance companies and title services

The historical procedure allowed title completion without a second tax payment when proof existed.

County tax assessor-collectors

The Comptroller's policy placed the risk of the failed dealer's nonremittance away from a buyer who could document payment.

Common questions

Q: Did the buyer owe tax again?

A: No, with evidence of payment to the dealer.

Q: What dealer failures did the letter mention?

A: Bankruptcy, disappearance, or otherwise going out of business.

Q: Could title transfer without additional tax?

A: Yes.

Citations and references

• The letter referred to a legislative change requiring payment to the selling dealer but did not identify the statute.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9801133L

Original ruling text

January 8, 1998

Dear **:

This is in follow-up to our discussions involving sales by AUTO DEALERSHIP
where the dealer failed to transfer title and submit motor vehicle sales tax.
The particular sales we discussed involved FINANCE COMPANY as a lender.

Generally, where it can be documented that a purchaser paid tax to the dealer
who is no longer in business (bankrupt, disappeared, etc.), and the dealer
failed to transfer title and submit the tax, tax will not again be collected
from the purchaser when the title is finally transferred. This policy is due
to the legislative change requiring purchasers to pay the tax to the selling
dealer.

Comptroller staff, including our audit division, recently met with an FINANCE
COMPANY representative and TxDOT staffers on these AUTO DEALERSHIP
transactions. These titles may be transferred without the payment of
additional tax so long as there is some evidence of tax paid to the dealer.

If you have any questions please give me a call at 1-800-531-5441, extension
3-4684.

Sincerely,

Curt Swenson
Tax Policy Division