How did Texas tax trailers bought for 36-month operating leases, attached accessories, and a lessee's later balloon-payment purchase?

Plain-English summary

The Texas Comptroller treated trailers as motor vehicles subject to Tax Code Chapter 152.

For a trailer bought to be leased under a 36-month operating lease, the lessor paid motor vehicle sales tax on its purchase. The 1998 letter quoted a 6 1/4% rate and said tax was paid at titling or registration; treat that rate and procedure as historical.

Accessory treatment depended on the purchase structure. Accessories already attached when the trailer was bought were included with the entire motor vehicle package. If the trailer came from one vendor and the accessories were bought later in a separate transaction from another vendor, the trailer bore motor vehicle tax and the accessories bore limited sales tax.

Finally, if the lessee made a balloon payment and took title under a true operating lease rather than a conditional sale or finance contract, that transfer was a second taxable sale.

What this means for you

Trailer leasing companies

The historical tax point for the 36-month operating lease was the lessor's purchase, followed by a separate taxable sale if the lessee later bought the trailer.

Equipment lessors and trailer dealers

Buying accessories attached versus in a separate vendor transaction changed which tax applied.

Fleet accountants

Confirm whether the customer contract is a genuine operating lease or a finance arrangement before applying the buyout result.

Common questions

Q: Were trailers treated as motor vehicles?

A: Yes.

Q: How were attached accessories taxed?

A: As part of the motor vehicle package.

Q: How were separately purchased accessories taxed?

A: Under limited sales tax, according to the letter.

Q: Was the balloon-payment title transfer taxable?

A: Yes, if the original contract was truly a lease.

Citations and references

• Texas Tax Code Chapter 152

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9812024L

Original ruling text

December 2, 1998

Dear Mr. **:

Thank you for your letter concerning the taxability of leasing vehicles under
36 month contracts. I have responded to your questions in the order received.

Trailers are considered motor vehicles and are subject to taxes imposed in
Chapter 152 of the Tax Code.

Trailers purchased to be leased are subject to motor vehicle sales tax on
lessor's purchase. The tax is 6 1/4% of the purchase price and paid to the
dealer or County Tax Assessor-Collector at the time of titling/registration.

If a trailer (or any motor vehicle) is purchased with accessories attached the
entire package is subject to motor vehicle sales tax. If the trailer is
purchased in a single transaction from one vendor, and then the accessories are
purchased in a separate transaction from another vendor, motor vehicle tax is
due on the trailer purchase transaction and limited sales tax is due on the
separate purchase of the accessories.

Your last question deals with whether or not motor vehicle tax is due when the
lessee pays a balloon payment and takes title to the motor vehicle. If your
transaction is in fact a lease and not a conditional sale contract, then a
second sale transaction has occurred and tax is due on that transaction.

This opinion is based on the facts presented and the understanding that your
contract with your customer is an operating lease as opposed to a finance
contract. If there are additional or different facts, the opinion could
change.

If you have any questions, please feel free to contact one of our Tax
Specialist by calling 1-800-252-1382, toll free.

Sincerely,

Curt Swenson
Tax Policy Division