Ezel / Tax Rulings / TX
TX 9809824L Motor Vehicle Tax 1998-09-01

Did Texas motor vehicle rental tax apply to airport franchise fees, separately stated insurance, and collision damage waiver charges?

Short answer: The assumed airport franchise fee was the rental company's expense and part of the taxable rental price. A separately stated true insurance charge was not taxed. But a collision damage waiver was not insurance; it was the rental company's agreement not to hold the customer liable for damage charges and was taxable.

Apply this to your situation

This page answers the general question as of 1998. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1998
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller letter issued on a specific 1998 rental invoice. Its 10%, 5%, and 15% rates are historical, and airport concession arrangements, venue taxes, insurance definitions, damage-waiver treatment, and taxable-price rules may have changed. The Comptroller expressly described the concession-fee characterization as an assumption and requested the invoice. Unrelated taxpayers cannot treat the letter as binding protection. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

The Texas Comptroller distinguished three add-on charges on a 1998 motor vehicle rental.

First, the letter assumed a 10% airport concession charge was actually a city franchise fee imposed on the rental company for the right to operate at the airport. As the company's expense, that fee was included in the taxable rental price.

Second, a separately stated charge for true insurance was not taxed.

Third, a collision damage waiver was not insurance. It was the rental company's agreement not to hold the customer responsible for specified minimum damage charges, so it formed part of the taxable rental price.

The letter also described a 15% combined rental-tax rate consisting of 10% state tax and 5% sports-authority tax. Those rates are historical.

What this means for you

Rental car companies

Labels did not control. The Comptroller looked at whether the charge purchased insurance, shifted the company's own operating expense, or bought a contractual damage waiver.

Vehicle renters

A damage waiver could be taxable even when a separately stated insurance charge was not.

Rental tax accountants

Preserve the invoice and agreement language. The letter's franchise-fee conclusion was expressly based on an assumption pending review of the invoice.

Common questions

Q: Was separately stated insurance taxed?

A: No.

Q: Was a collision damage waiver taxed?

A: Yes.

Q: Why was the assumed airport franchise fee taxable?

A: It was treated as the rental company's expense included in the rental price.

Q: Are the rates current?

A: This 1998 letter does not establish current rates.

Citations and references

  • The letter did not identify a statute or administrative rule by number.

Source

Original ruling text

September 1, 1998

Re: taxes on taxes

Dear **:

Thank you for your inquiry concerning tax imposed on your motor vehicle rental.

First, the total tax rate is 15% (10% State and 5% CITY A/COUNTY A County
Sports Authority).

I assume the 10% concession tax is actually a franchise fee imposed on the
rental company by the city in order to operate at the airport. Such a fee is
an expense of the rental company and is part of the taxable rental price.

The tax law does not tax separately stated charges for insurance. However, if
the charge is for the rental company's agreement whereby the customer will not
be held liable for any minimum charges for damages (often termed collision
damage waiver), this is not insurance and is part of the taxable price.

I would appreciate you sending me a copy of the invoice, if available.

If you have any questions, please do not hesitate to contact me. My email
address is . I may also be reached by calling
1-800-531-5441, extension 3-4684. My mailing address is State Comptroller, Tax
Policy Division, Capitol Station, Austin, TX, 78774.

Sincerely,
Curt Swenson
Tax Policy Division

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