Can a motor vehicle be titled and registered in the name of a business trust, and can beneficial interests in that trust be sold or transferred to investors without triggering a re-titling requirement?

Plain-English summary

A company proposed a new vehicle-lease financing program built around a specially created business trust: the trust would hold legal title to leased motor vehicles and their lease contracts, with at least one trustee being a bank or trust company qualified to hold personal property title in Utah. When a dealer leased a vehicle to a customer, the lease contract would be sold/assigned to (or entered into directly by) the trust, and the trust -- not the originating company -- would apply for the vehicle's certificate of title and registration. Periodically, the company would identify pools of leases and vehicles ("Asset Pools") within the trust and have the trustee issue a "Portfolio Interest" (a beneficial interest tied to that specific pool), which the company would then sell or pledge to investors to raise financing -- all while the trust itself continued to hold legal title to the vehicles throughout. The company asked the Commission to confirm two things: that a vehicle could be titled/registered in the trust's name, and that transferring beneficial interests in the trust (like a Portfolio Interest) would NOT require re-titling or re-registering the underlying vehicles.

A business trust CAN be the titled owner -- if it's the actual lessor. Utah requires a vehicle to be registered and titled by its owner, and Utah Code § 41-1a-102(40)(c) specifically provides that when a vehicle is subject to a lease agreement, the LESSOR is considered the owner until the lessee exercises a purchase option. The Commission confirmed that if the proposed financing program establishes the trust as the actual lessor of the leased vehicles, the trust would be considered the owner for Utah titling and registration purposes -- allowing title and registration to be issued in the trust's name.

Transferring beneficial interests alone doesn't require re-titling -- but changing who the LESSOR is would. The Commission agreed that transferring only a beneficial interest in the trust (such as selling a Portfolio Interest to an investor) would not affect the trust's status as the lessor of the vehicles -- so the trust remains the titled owner, and no re-titling or re-registration is needed for that kind of transfer. However, the Commission flagged an important limit: if the financing structure were instead organized so that some OTHER entity (not the trust) becomes the new lessor of the vehicles, that WOULD require the vehicles to be titled and registered in the name of that new lessor.

What this means for you

Vehicle leasing companies and asset-backed securitization structures

You can use a business trust as the titled owner/lessor of a pool of leased vehicles for financing purposes, and sell or pledge beneficial interests (like securitized portfolio interests) to investors without needing to re-title or re-register each individual vehicle -- as long as the trust itself remains the actual lessor throughout, and only the beneficial ownership of the trust (not the lessor role itself) changes hands.

Banks and trust companies structuring vehicle-backed financing vehicles

Design your trust documents so that the transfer of Portfolio Interests or similar beneficial interests explicitly does not change who serves as lessor under the underlying lease contracts -- that's the key fact distinguishing an exempt beneficial-interest transfer from a re-titling-triggering change of lessor.

Auto dealers and financing companies considering similar leasing structures

If your structure ever shifts the actual LESSOR role to a different entity (rather than just transferring investor interests in a trust that remains the lessor), plan for a full re-titling and re-registration of the affected vehicles at that point.

Common questions

Q: Can a business trust be the titled owner of a leased motor vehicle in Utah?
A: Yes, if the trust is structured to be the actual lessor of the vehicle -- Utah treats the lessor as the owner for titling/registration purposes until the lessee exercises a purchase option.

Q: Does selling an investor a beneficial interest in a vehicle-holding trust require re-titling the vehicles?
A: No, as long as the transfer is only of a beneficial interest and doesn't change which entity is the lessor -- the trust remains the titled owner throughout.

Q: What would trigger a re-titling requirement in this kind of structure?
A: If the transaction is organized so that a different entity (not the trust) becomes the new lessor of the vehicles, that new lessor would need to re-title and re-register the vehicles in its own name.

Q: Does this ruling apply to my vehicle leasing or securitization structure?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission applies the lessor-as-owner titling rule to trust-based financing structures.

Citations and references

Statutes:

• § 41-1a-102(40)(c) (leased vehicle's lessor treated as owner until purchase option exercised)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/98-040.pdf

Original ruling text

98-040

Response June 10, 1998

REQUEST LETTER

May 6, 1998

Dear Sir or Madam:

I am writing on behalf of COMPANY A (the "COMPANY A") to request your confirmation that a program currently being considered by the COMPANY A for financing leases of the motor vehicles titled and registered in the State of Utah, as describe herein, conforms with the laws of Utah.

Specifically, the COMPANY A requests your concurrence that:

1. A certificate of title and registration may be issued in the name of a business trust as the owner of a motor vehicle; and

2. A beneficial owner of the trust may transfer all or part of its beneficial interest in the trust without being required to apply for a new certificate of title or registration for any of the motor vehicles owned by the trust.

Proposed New Financing Program

The COMPANY A has established a TRUST (the "Trust") for the purposes of holding title to motor vehicles and the lease contracts relating to such vehicles. The Trust will be

properly qualified to hold title to personal property in the State of Utah. The Trust will have one

or more trustees. At least one trustee of the Trust (the "Principal Trust") will be a bank or trust

company that is properly qualified to act as a trustee for a trust holding title to personal property

in the State of Utah. Initially the COMPANY A will be the sole beneficiary of the Trust. The COMPANY A will act as the initial servicer (in such capacity, the "Service") for the Trust.

Under the new program, when a dealer leases a motor vehicle to a customer, the lease

contract will be sold or assigned to the Trust or will be entered into directly by the Trusts. The

dealer or the Servicer, or an agent to their behalf acting pursuant to a power of attorney executed

by or on behalf of the Trust, will then make application for the original certificate of title to the

leased vehicle, and registration where appropriate, in the name of the Trust. As a result, under

the proposed program, the Trust, rather than the COMPANY A, would acquire legal ownership of the motor vehicles and leases and would be shown as the owner of the vehicle on the certificate of title or registration.

From time to time, the COMPANY A will identify pools (each, and "Asset Pool") of leases and related vehicles owned by the Trust, which pools may be supplemented by additional leases and related vehicles subsequent to the initial pool identification. The COMPANY A will instruct the Principal Trustee to create and issue to the COMPANY A a beneficial interest (a "Portfolio Interest") in the Trust representing an interest in the Asset Pool. The COMPANY A will then transfer the Portfolio interest, by means of one or a series of sales, assignments or pledges, to a subsequent holder or holders, in exchange for the purchase price of, or a loan secured by, the Portfolio Interest. The COMPANY A will continue to own the beneficial interest in the Trust not related to any Asset Pool.

Irrespective of such transfer of the Portfolio Interest, the Trust will continue to hold the

legal ownership interest in the leases and the related motor vehicles in the Asset Pool.

Consequently, although a beneficial interest in the Trust will be transferred, title and the legal

ownership interest in the vehicles will remain in the Trust and will not be transferred. At the

termination of the lease contract or upon any other sale or transfer of legal title to a motor vehicle subject to a lease, all requirements of the State of Utah for retitling and registering the motor vehicle will be followed.

The Bank's Request

In connection with the COMPANY A's proposed new financing program described above the COMPANY A seeks your written confirmation that under the laws of the State of Utah:

1. A certificate of title and registration may be issued in the name of the Trust as owner of a motor vehicle; and

2. The COMPANY A or another beneficial owner of an interest in the Trust may transfer all or part of its beneficial interest in the Trust (e.g., a Portfolio Interest) without being required to apply for a new certificate of title or registration for any of the motor vehicles owned by the Trust.

Any additional information you may be able to provide, including applicable motor

vehicle regulations or policies and procedures respecting titling vehicles in the name of a trust

such as the Trust, would be greatly appreciated. If you have any questions, please contact me at

.

Thank you in advance for your attention to this matter.

Very Truly Yours,

NAME

RESPONSE LETTER

June 10, 1998

NAME

ADDRESS

CITY, STATE ZIP

RE: Advisory Opinion - Registration and Titling of Motor Vehicles

Dear NAME,

We have received your request for an advisory opinion concerning the registration and titling of motor vehicles owned by a business trust. Your specifically ask for confirmation that:

1. A motor vehicle may be registered and titled in the name of a CITY business trust; and

2. A beneficial owner of that trust may transfer all or part of its beneficial interest in the trust without being required to retitle and reregister any of the motor vehicles owned by that trust.

As to your first question, a motor vehicle is required to be registered and titled by its owner. Utah Code Ann. �41-1a-102(40)(c) states that if a vehicle is the subject of an agreement to lease, the lessor is considered the owner until the lessee exercises his option to purchase the vehicle. If your proposed financing program establishes that the CITY business trust is the lessor of the leased motor vehicles, then it would be considered the owner for registration and titling purposes.

As to your second question, it would appear from your statements that the transfer of only a beneficial interest in the trust would not affect the trust�s status as the lessor of the motor vehicles. If this is indeed the case, then the trust would remain the owner of the vehicles and there would be no need to retitle and reregister the vehicles. However, should you organize the transfer so that an entity other than the trust becomes the lessor of the vehicles, then the vehicles would need to be titled and registered in the name of the new lessor.

Please contact us if you have any other questions.

For the Commission,

Joe B. Pacheco

Commissioner

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