Could a lease facilitator handle a lessee's trade-in without the dealer physically possessing the vehicle or title, and what records were required?

Plain-English summary

The Texas Comptroller allowed a licensed lease facilitator to coordinate a lessee's liened trade-in even though the dealer never physically possessed the vehicle and might not physically possess its title.

The dealer's records still had to show that it accepted the trade-in as partial payment on the new vehicle. The new-vehicle sale and trade-in allowance belonged in the same transaction; the dealer's later sale of the trade-in to the lease facilitator was a separate transaction.

A lease facilitator acting under the dealer's power of attorney could handle the title assignments. The dealer needed copies showing the entire transfer trail and proper transfer of the vehicle.

To protect against later tax liability, the dealer's file had to include:

1. A vehicle-specific power of attorney authorizing the facilitator to sign for the dealership.
2. Copies of the title application.
3. A copy of the title-application receipt.
4. Inventory records showing that the trade-in was received and became a dealership asset.

What this means for you

Lease facilitators

Physical possession was not essential, but documented authority and a complete title trail were.

Motor vehicle dealers

The books had to reflect the trade-in in both the new-vehicle purchase transaction and dealership inventory.

Dealership accountants

Treat the dealer's later transfer of the trade-in to the lease facilitator as separate from the original new-car sale and trade-in allowance.

Common questions

Q: Did the dealer have to physically possess the trade-in?

A: No.

Q: Could the facilitator handle title assignments?

A: Potentially yes, under a power of attorney from the dealer.

Q: What had to be in the dealer's file?

A: The vehicle-specific power of attorney, title application, title receipt, transfer-trail documents, and inventory records.

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/9811999L

Original ruling text

November 16, 1998

Dear Mr. **:

Thank you for your request for motor vehicle tax information.

Situation: A customer contacts a licensed lease facilitator and requests to
lease a vehicle. The lessee has a vehicle with a lien against it that he wants
to trade in on the leased vehicle. The lease facilitator appraises the
lessee's trade-in and the lessee agrees to lease the new vehicle through the
lease facilitator. The lease facilitator then contacts the dealer to purchase
the new vehicle to be leased. The lessee's own (old) vehicle is to be provided
to the dealer as consideration for the purchase of the new vehicle. The dealer
sells the new vehicle to the lease facilitator and receives in payment the cash
net difference for the transaction. The lease facilitator then, in a separate
transaction, purchases the trade-in from the dealer for the exact appraised
amount. The lease facilitator delivers the new car to the lessee and the
transaction is complete.

Question 1: The dealer never actually sees or physically possesses the
trade-in. You ask if this is permissible.

Response: The dealer does not have to physically possess the trade-in. The
dealer's records must show that the trade-in was accepted as partial payment on
the new vehicle.

Question 2: You ask if the dealer is correct in handling the new car sale and
the trade-in sale as separate transactions.

Response: The new car sale and the trade-in "allowance" should be part of the
same transaction; the "sale" of the trade-in to the lease facilitator should be
a separate transaction.

Question 3: You ask if it is acceptable that the dealer never physically has
possession of the title to the trade-in.

Response: If someone else is serving as power of attorney for the dealer, it
may be possible that the dealer does not actually have possession of the title.
However, the dealer must have on record copies of all documents to show the
trail of what actually occurred and that the vehicle was properly transferred.

Question 4: You ask if it is acceptable for the dealer to allow the lease
facilitator to assign the trade-in title to the dealer and then to the lease
facilitator, assuming the lease facilitator has a power of attorney from the
dealer allowing him to do so.

Response: See response to Question 3.

Question 5: You ask what physical records of this transaction the dealer
should keep on file to absolve himself of any future tax liability in case of
an audit.

Response: The dealer will need a copy of the power of attorney showing that
the lease facilitator is authorized to sign on behalf of the dealership on the
transfer of this particular vehicle, copies of the application for title
(130-U), along with a copy of the receipt for title application. The dealer's
inventory records should show that the trade-in was received and was an asset
of the dealership.

This opinion is based on the information 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