Texas Motor Vehicle Sales Tax Compliance

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Texas Motor Vehicle Sales Tax Compliance

by Texas Comptroller of Public Accounts

Tax Policy Division Staff

G P S Un i t P u r c h a s e s ;

Sales of Unrepaired Salvage Vehicles, Non-Repairable Vehicles, and Units Declared a Total Loss by an Insurance Company

Texas independent motor vehicle dealers continually look to the Comptroller’s office for guidance on compliance issues.

In this article, we discuss two such issues: the taxability of GPS units purchased by dealers specifically to track vehicles and the taxability of unrepaired salvage vehicles, non-repairable vehicles, and units declared a total loss by an insurance company subsequently sold to Dismantlers.

D e a l e r P u r c h a s e s o f G P S Un i t s f o r S e l l e r F i n a n c e d Ve h i c l e s

Independent motor vehicle dealers purchase GPS units for installation on motor vehicles sold in a sellerfinanced sale. These GPS units are subject to limited sales and use tax.

The units are not accessories for the convenience or use of the driver. The units are for the dealer’s own use to locate and recover motor vehicles if the buyer becomes delinquent on their auto loan. Therefore, a dealer may not purchase the GPS units tax free for resale, and limited sales and use tax is due on the purchase of the units.

If a vendor does not collect tax on the sale of a GPS unit, the dealer must remit taxes that are owed, but are not collected by the vendor, by adding the amount of tax owed to the dealer’s limited sales and use tax report and remitting the appropriate taxes directly to the Comptroller’s office. Note, this tax is reported on a Limited Sales and Use Tax report and not on a Motor Vehicle Sales and Use Tax report.

Limited sales and use tax rates vary by location. The tax rate is 6.25 percent for the state and up to 2 percent for local tax.

D e a l e r S a l e o f Un r e p a i r e d S a l v a g e , N o n R e p a i r a b l e Ve h i c l e s , a n d Un i t s D e c l a r e d a To t a l L o s s b y a n I n s u r a n c e C o m p a n y

A unit is no longer a motor vehicle for tax purposes if it: has a salvage certificate or a non-repairable motor vehicle certificate of title issued pursuant to the

Certificate of Title Act; has a certificate of authority for an abandoned motor vehicle; or is a unit that has been declared a total loss by an insurance company.

The sale of these units is taxable under the Limited Sales and Use Tax (Tax Code, Chapter 151) and not the Motor Vehicle Sales and Use Tax (Tax Code, Chapter 152). Dealers selling taxable units subject to the Limited Sales and Use Tax must have a sales tax permit and collect and remit tax on sales of these units.

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Unrepaired salvage vehicles, non-repairable vehicles, or a units declared a total loss by an insurance company are generally sold to Dismantlers. When a dealer sells one of these units to a Dismantler, the dealer must collect limited sales and use tax or accept a resale certificate from the Dismantler provided the Dismantler has a limited sales and use tax permit.

If a Dismantler has a sales tax permit, the dealer can accept, in lieu of sales tax, a properly completed Form 01-339 (front), Texas Sales and Use Tax Resale Certificate on the purchase of an unrepaired salvage vehicle, a non-repairable vehicle, or a unit declared a total loss by an insurance company.

The dealer must maintain the resale certificates in its books and records to document any sales on which sales or use tax was not collected.

A d d i t i o n a l I n f o r m a t i o n

For questions regarding limited sales and use tax, please call 800-252-5555. For questions regarding motor vehicle sales and use tax, please call 800-252-1382. You can also visit the Comptroller’s website at www.comptroller.texas.gov.

On-Demand Offerings

Featured Courses

TIADA designed and implemented some important on-demand courses to give dealers quality educational programs they can access throughout the year. These programs are essential for dealers to stay compliant. They offer flexibility, so you can complete them according to your schedule. These courses are designed for any dealers with questions related to various regulations that affect their businesses.

Repossession 101: What You Need to Know

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The Basics of Transferring Titles*

Want to avoid having your title transfer paperwork rejected at the tax office? This online course is designed to walk you through the title transfer process and is best suited for people new to transferring titles or those who want to brush up on the basics. This course has been reviewed for accuracy by the Tax Assessor-Collectors Association of Texas.

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*Also available in Spanish

To register visit Txiada.org/on-demand

Call us at 512.244.6060 or email us if you need assistance.