SECTION 3.70. Motor Vehicle Leases and Sales

(a) Except for purchases by franchised dealers described in this subsection, motor vehicles that are purchased by a lessor to be leased are subject to motor vehicle sales or use tax based upon the purchase price of the motor vehicle to the lessor. Such tax is due from the lessor at the time of purchase. Subsequent lease payments are not subject to the tax. The purchase of a new motor vehicle by a franchised dealer who removes the motor vehicle from inventory for the purpose of leasing the vehicle to another person, and who immediately after executing the lease contract transfers title of the vehicle and assigns the lease contract to a lessor, is not a retail purchase and is not subject to tax. If the title is not transferred and the lease assigned within seven calendar days, the dealer's purchase and use will be presumed to be a retail purchase and taxable. The presumption may be overcome by showing evidence of intent. The lessor to whom the dealer transfers title and assigns the lease contract is liable for motor vehicle sales and use tax.

(b) If, at the termination of a lease, a motor vehicle is sold by the lessor to the lessee and the lease contained an "option to purchase" at less than fair market value or a "must purchase" clause or if the vehicle is sold to the lessee at less than fair market value, the amount subject to the motor vehicle sales and use tax will be the total consideration paid the lessor by the lessee under the agreement, since the agreement will be considered a sale rather than a lease agreement. "Total consideration" means the amount paid or to be paid for a motor vehicle and all accessories attached to it at the time of the sale; total consideration does not include separately stated finance charges, carrying charges, service charges, or interest.

(c) If the transaction is considered to be a sale and not a lease, as described in subsection (b) of this section, no additional motor vehicle sales tax is due at the time the initial lessee/purchaser takes title to the vehicle, provided the correct amount of tax was previously paid on the total consideration. If the correct amount of tax was not paid on the total consideration, the lessee/purchaser must pay the difference when the vehicle is titled in his name.

(d) If the motor vehicle is sold to a person not privy to the lease or if it is sold to the lessee at fair market value, the amount subject to the motor vehicle sales and use tax is the agreed-upon sales price. (See Attorney General Opinion WW-711 (1959).)

(e) Motor vehicle use tax is due on a motor vehicle purchased outside of the State of Texas and leased and brought into the state for use upon the highway. The lessee of the motor vehicle is liable for such tax. If the lessee is a resident of this state or is domiciled or doing business in this state the tax is based upon the consideration paid outside the state by the purchaser of the motor vehicle, regardless of any use or depreciation of the vehicle subsequent to its purchase and prior to its use in this state. If the lessee is a new resident of this state as described in §3.71 of this title (relating to Definition of "Resident" and "New Resident"), the new resident may pay a new resident use tax of $90 imposed by Tax Code, §152.023, in lieu of the 6.25% use tax.

(f) A lessee may take credit for legally imposed sales, use, or similar tax paid to another state by the lessee or the lessor on the leased motor vehicle before that vehicle becomes subject to the Texas motor vehicle use tax imposed by Tax Code, §152.022. If the lessee purchases the leased vehicle, credit will be allowed for Texas motor vehicle use tax imposed by Tax Code, §152.022, and paid by the lessee when the vehicle was brought into this state.

(g) An owner of a motor vehicle that was purchased to be leased for interstate use, tax exempt under Tax Code, §152.089, is liable for motor vehicle sales/use tax if the motor vehicle is no longer held for interstate use or held exclusively for resale. The tax is imposed at a rate prescribed by Tax Code, §152.021(b), and based on the owner's book value at the time the vehicle was removed from interstate use.

Source Note: The provisions of this §3.70 adopted to be effective December 4, 1996, 21 TexReg 11622; amended to be effective December 9, 1998, 23 TexReg 12449; amended to be effective March 19, 2000, 25 TexReg 2154