TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER F. MOTOR VEHICLE SALES TAX

34 TAC §3.74

The Comptroller of Public Accounts adopts amendments to §3.74, concerning seller responsibility, without changes to the proposed text as published in the March 10, 2017, issue of the Texas Register (42 TexReg 1086). This amendment reorganizes the content of existing §3.74 to be consistent with other sections of this title, amends existing definitions, and adds new definitions. This amendment also implements House Bill 2400, 84th Legislature, 2015; Senate Bill 1, 82nd Legislature, 1st Called Session, 2011; House Bill 2357, 82nd Legislature, 2011; Senate Bill 1235, 81st Legislature, 2009; House Bill 3314, 80th Legislature, 2007; and Senate Bill 1617, 80th Legislature, 2007. The amendment corrects grammatical and typographical errors and memorializes comptroller practice not addressed in the current section.

To make the section clearer, the phrase "motor vehicle tax" is used in place of the word "tax," and the defined term "motor vehicle" is used in place of the word "vehicle." The phrases "tax statement" and "application for certificate of title" are deleted and replaced with the term "Application for Texas Title and/or Registration," which is defined in new subsection (a)(1). The phrase "franchised dealer" is replaced with the more specific term "franchised motor vehicle dealer," which is defined in new subsection (a)(7), and the term "dealer" is used instead of the undefined phrase "selling dealer." For consistency, the word "report" is used throughout the section instead of the word "return."

Thirteen new defined terms are added to subsection (a). Subsequent paragraphs are renumbered accordingly. New paragraph (1) is added to define "Application for Texas Title and/or Registration." The terms "application for certificate of title" and "tax statement" were previously used in this section, but were not defined.

New paragraph (2) defines the term "cash discount." The definition is based, in part, on the meaning assigned to the term "cash discounts" by Black's Law Dictionary 498 (8th ed. 2004), as well as prior comptroller guidance provided in STAR Accession No. 7008L0011C06 (August 20, 1970). The definition also incorporates long standing agency practice that manufacturers' and dealers' rebates passed directly to the customer are cash discounts. See STAR Accession No. 7909L2018E07 (September 7, 1979).

Renumbered paragraph (3), formerly paragraph (1), defining the term "date of sale" is amended by replacing the word "delivery" with the word "possession" to memorialize the comptroller's understanding that the term used in this definition, whether delivery or possession, has the meaning assigned to the term "absolute delivery" by Black's Law Dictionary 461 (8th ed. 2004).

Renumbered paragraph (4), formerly paragraph (2), defining the term "dealer" is amended to use the term "general distinguishing number," which is defined in new paragraph (8), instead of the phrase "license to reflect the wording of Transportation Code, Chapter 503 (Dealer's and Manufacturer's Vehicle License Plates)." In addition, the term "franchised motor vehicle dealer," which is defined in new paragraph (7), is used instead of the phrase "authorized by law and by franchise agreement to offer for sale a new motor vehicle;" and the term "independent motor vehicle dealer," which is defined in new paragraph (9), is used instead of the phrase "authorized by law to offer for sale a motor vehicle other than a new motor vehicle." In addition, a sentence is added to make clear that salvage dealers do not meet the definition of "dealer" for purposes of this section.

New paragraphs (5) through (11) are added to define terms not previously used in this section. New paragraph (5) defines the term "distributor" based on the definition of the term in Occupations Code, §2301.002(11) (Definitions).

New paragraph (6) defines the term "extended warranty or service contract." This term is given the same meaning as the definition in §3.290 of this title (relating to Motor Vehicle Repair and Maintenance; Accessories and Equipment Added to Motor Vehicles; Moveable Specialized Equipment), except that the term "motor vehicle" is used in place of the more generic term "product."

New paragraph (7) defines the term "franchised motor vehicle dealer." The definition is taken from Occupations Code, §2301.002(16) and (17) and Transportation Code, §503.001(8) (Definitions).

New paragraph (8) defines the term "general distinguishing number" and is based on Occupations Code, §2301.002(17).

New paragraph (9) defines "independent motor vehicle dealer." The definition is taken in part from Transportation Code, §503.001(9) and §503.029(6) (Application for Dealer General Distinguishing Number), and Occupations Code, §2301.002(25).

New paragraph (10) defines the term "lease." The definition is based on Tax Code, §152.001(6) (Definitions).

New paragraph (11) defines the term "manufacturer" and is based on the definition of the term in Occupations Code, §2301.002(19). The definition lists manufacturers that are excluded from the definition, as provided by Occupations Code, Chapter 2301. See, for example, Occupations Code, §2301.002(1-a) ("'Ambulance manufacturer' means a person other than the manufacturer of a motor vehicle chassis who, before the retail sale of the motor vehicle, performs modifications on the chassis that result in the finished product being classified as an ambulance.")

New paragraph (12) defines "motor vehicle." The definition is based, in part on Tax Code §152.001(3) and (4) and the definition of the term given in §3.80 of this title (relating to Motor Vehicles Transferred as a Gift or for No Consideration).

Renumbered paragraph (13), formerly paragraph (3), defining the term "new motor vehicle" is amended to follow the statutory language more closely.

New paragraph (14) defines "rental" based on Tax Code, §152.001(5) and the definition of the term provided in §3.78 of this title (relating to Motor Vehicle Rentals).

Renumbered paragraph (15), formerly paragraph (4), defining the term "retail sale" is amended to state that the term does not include a sale that is a "sale for resale"- a term that is defined in new paragraph (16). Existing subparagraphs (A) and (B) are deleted because the content of these subparagraphs is now addressed in the new definition of a sale for resale. Existing subparagraph (C) is relettered as subparagraph (B). In addition, the beginning of the subparagraph is amended to add the following: "a sale for lease, meaning..." The word "immediately" is removed and is replaced with the phrase "seven calendar days," and provides the dealer's purchase is presumed to be a retail purchase and taxable unless the presumption is overcome by showing evidence of intent, as provided in subsection (a) of §3.70 of this title (relating to Motor Vehicle Leases and Sales).

New paragraph (16) is added to define the term "sale for resale." This definition is based on Tax Code, §152.001(2) and incorporates the content of subsection (a)(4)(A) and (B) of the current rule, which identify sales to franchised motor vehicle dealers and independent motor vehicle dealers, respectively, as not being retail sales. This paragraph also includes transactions in which motor vehicles are purchased by a manufacturer or distributor who acquires the motor vehicles either for the exclusive purpose of sale or for purposes allowed under Transportation Code, Chapter 503. This implements House Bill 2400, which enacted Tax Code, §152.001(2)(D) and excludes these transactions from the definition of retail sales. Subparagraph (E) of this paragraph is included to identify uses of motor vehicles that are allowed under Transportation Code, Chapter 503.

Renumbered paragraph (17), formerly paragraph (5), defines the term "seller-financed sale." Subparagraph (A) is amended to use the defined term "total consideration."

New paragraph (18) is added to define the term "seller-financed sales tax report," which appears in this section but is not defined.

Renumbered paragraph (19), formerly paragraph (6), defining the term "total consideration" is expanded to incorporate language from Tax Code, §152.002 (Total Consideration). Subparagraphs are added to make the definition easier to read. New subparagraph (A) follows the language of §152.002(a)(1) - (4). New subparagraph (B) memorializes prior comptroller guidance that "consideration" can be something other than cash. See §3.80 of this title. New subparagraph (C) identifies charges that are not included in total consideration and adds to existing language items that have not previously been addressed in this section, including: examples taken from Tax Code, §152.002(b), such as a full cash or credit refund to a customer of the sales price of a motor vehicle returned to the seller; a fair market value deduction, as provided by §3.73 of this title (relating to Qualifying for Fair Market Value Deduction and Determination of Fair Market Value for Replaced Vehicles); and a separately stated charge for an extended warranty or service contract, as addressed in STAR Accession No. 201505188L (May 27, 2015).

Subsection (b) addresses tax permits. The subsection's heading is amended to use the phrase "motor vehicle seller-financed sales tax permit," rather than "tax permit," to better identify the subsection. Paragraphs are added to make the subsection easier to read. For consistency, the words "owner" and "entity" are replaced with "dealer" where appropriate within the subsection.

New paragraph (1) addresses how to obtain a permit and provides the address of the comptroller website where taxpayers can find the application. New paragraph (2) provides that a dealer making seller-financed sales at multiple locations is only required to have one Motor Vehicle Seller-Financed Sales Tax Permit. In new paragraph (3), the existing language is amended to delete the phrase, "The permit application will be furnished by the comptroller," as this information is addressed in new paragraph (1).

Subsection (c), addressing collection of motor vehicle tax, is amended to also address remittance of the tax to the appropriate county tax assessor-collector or to the comptroller. The term remittance is added to the subsection's heading.

Paragraph (1) addresses the collection of tax on seller-financed sales. To make the paragraph easier to read, subparagraphs are added. New subparagraph (A) states that a dealer making a seller-financed sale must apply for title and registration to the appropriate county tax assessor-collector no later than the 45th day after the date the motor vehicle is delivered to the purchaser. This amendment implements Senate Bill 1235, which amended Tax Code, §152.069(a) (Registration of Motor Vehicles Using Seller-Financing) to add that the dealer who sells a motor vehicle through a seller-financed sale shall apply for title and registration for the motor vehicle in the name of the purchaser no later than the 45th day after the date the motor vehicle is delivered to the purchaser.

New subparagraph (B) amends existing language to implement House Bill 3314, which amended Tax Code, §152.0472(b) (Determination of Whether Loan is Factored, Assigned, or Transferred). The new subparagraph provides that a dealer making seller-financed sales may elect to pay motor vehicle tax on the total consideration for the motor vehicle at the time the Application for Texas Title and/or Registration is presented to the county tax assessor-collector, or may collect and remit the motor vehicle tax to the comptroller as payments are received, as provided in subsection (d). In addition, language is added to provide that the dealer must include its 11-digit seller-financed sales tax permit number on the Application for Texas Title and/or Registration if the dealer intends to remit the tax on a report to the comptroller.

The language in the current rule addressing the fact that the tax is a debt of the purchaser to the seller until paid is moved to new paragraph (4). The current rule language addressing down payments is incorporated into subsection (e) of this section.

Paragraph (2) addresses collection of tax on retail sales other than seller-financed sales. This paragraph is amended by reorganizing the existing information into subparagraphs.

New subparagraph (A) amends existing language to state that a dealer must collect motor vehicle tax on the total consideration for each motor vehicle, unless the sale is exempt. New subparagraph (B) explains the dealer must remit the motor vehicle tax due on the retail sale at the time the Application for Texas Title and/or Registration is presented to the county tax assessor-collector. The sentence in current subsection (c)(2) addressing the fact that the tax is a debt of the purchaser to the dealer until paid is moved to new paragraph (4) of this subsection.

New subparagraph (C) revises the language in current subsection (c)(2), advising dealers they are not required to collect tax on the sale of a motor vehicle with a gross weight in excess of 11,000 pounds. The subparagraph also advises that the Application for Texas Title and/or Registration must be signed by both the dealer and purchaser, as required by Tax Code, §152.062 (Required Statements). The statement "required by Texas Department of Motor Vehicles to apply for title or registration of the motor vehicle in Texas" is added in place of the word "necessary." The amendment also states that the purchaser must remit the tax due to the county tax assessor-collector within 30 calendar days after the date of sale.

New subparagraph (D) restates information currently provided in subsection (d)(2)(B) but is updated to implement House Bill 2357, which amended Transportation Code, §502.040 (Registration Required; General Rule for Title) to change the deadline for applying to register a vehicle to 30 days from the date of purchase or initial occupancy in this state.

New paragraph (3) addresses recordkeeping requirements. This subparagraph is based on Tax Code, §111.0041 (Records; Burden to Produce and Substantiate Claims).

New paragraph (4) incorporates existing language stating that, except as provided in paragraph (2)(C) of this section, the tax is a debt of the purchaser to the dealer. Additional language is derived, in part, from §3.286 of this title. The amendment also states the comptroller can proceed against either the dealer or purchaser, or both, until all applicable motor vehicle tax, penalty, and interest is paid.

Subsection (d) is amended to address the remittance of motor vehicle tax on seller-financed sales as payments are received. The heading of the subsection is amended to better identify information the revised subsection now addresses. Because the entire subsection now addresses seller-financed sales, existing paragraph (1) is deleted. Subparagraphs (A) - (G) are renumbered as paragraphs (1) - (7).

The existing language in renumbered paragraph (1), formerly subparagraph (A), is revised to make the paragraph easier to read. The term "owned" is used in place of the term "operated" to make the paragraph more precise. Subparagraph (B) is deleted, as the information is incorporated into new paragraph (2).

Paragraph (2), formerly subparagraph (C), is amended to replace the word "will" with "must" and to use the defined term "seller-financed sales tax report."

New paragraph (3) is added to address electronic filing and remittance. The paragraph is further amended to advise that some dealers must file reports and remit tax electronically, as provided by Tax Code, §111.0625 (Electronic Transfer of Certain Payments) and §111.0626 (Electronic Filing of Certain Reports). A reference to §3.9 of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers) is also added.

Paragraphs (4) and (5), formerly subparagraphs (D) and (E), are amended to make the paragraphs easier to read.

Paragraph (6), formerly subparagraph (F), is amended to make the paragraph easier to read, and to include a reference to paragraph (7).

Paragraph (7), formerly subparagraph (G), is amended to address prepayments of the tax as well as discounts. The heading of the subparagraph is revised accordingly. Existing clauses (i) and (ii) are relettered as subparagraphs (A) and (B) and expanded to include language derived from §3.286 of this title. Subparagraph (B), formerly clause (ii), is divided into five clauses to make it easier to read.

New paragraph (8) is added to address penalties and interest. Paragraph (8)(A) was formerly subsection (d)(1)(G)(iv). The language is revised to make the paragraph easier to read. New paragraph (8)(B) is added to implement Senate Bill 1, which added an additional penalty of $50 for failing to file a timely report. See Tax Code, §152.047(j) (Collection of Tax on Seller-Financed Sale). In addition, the statement describing the calculation of interest assessed on late-filed reports that were due on or before December 31, 1999 is deleted as it is no longer relevant due to the passage of time.

Existing paragraph (2), addressing retail sales other than seller-financed sales, is deleted. The relevant portions of the paragraph are incorporated into subsection (c)(2) of this section. The statement that a copy of the receipt for taxes issued by the county tax assessor-collector may be retained as evidence that the proper amount of tax was submitted by the dealer is deleted because it is no longer relevant, as receipts are no longer routinely issued by county tax assessor-collectors or the Texas Department of Motor Vehicles.

Subsection (e) addresses general principles of seller-financed sales. New paragraph (1), formerly subsection (c)(1), addresses the taxability of a down payment. New paragraph (2), also formerly subsection (c)(1), states that when a finance agreement bears interest, it is presumed that interest accrues and is paid by the purchaser on a straight line basis.

Paragraph (3), formerly paragraph (1), is amended by substituting the term "dealer" for the term "seller" to be consistent with the rest of the section. The section is further amended by adding that the remainder of tax owed is due "on the first seller-financed report due no later than the 20th day of the month following the end of the reporting period," instead of "in the report period."

Renumbered paragraph (4), formerly paragraph (2), is amended to use the defined term Application for Texas Title and/or Registration and to make the paragraph easier to read.

Renumbered paragraph (5), formerly paragraph (3), is amended to make the paragraph easier to read. The paragraph is also amended to clarify that unremitted tax is based on the total consideration for the motor vehicle and is due no later than the 20th day of the month following the end of the reporting period in which the expiration of the 60 days occurred.

Renumbered paragraph (6), formerly paragraph (4), is amended by adding the clause "unless excluded from acceleration of tax by paragraph (7) of this subsection" to address tax acceleration when the dealer sells, factors, assigns, or otherwise transfers the right to receive payments to a related finance company. Renumbered paragraph (6) is also amended to clarify that the dealer is liable for all unremitted tax due on the total consideration on the sale of the motor vehicle, and the dealer must report and remit any tax due on the first seller-financed report due no later than the 20th day of the month following the end of the reporting period in which the transfer of the right to receive payments occurred.

New paragraph (7) is added to implement House Bill 3314 and Senate Bill 1617. This paragraph provides that tax acceleration does not occur if the dealer making the seller-financed sale sells, factors, assigns, or otherwise transfers the right to receive payments to a person registered with the comptroller's office as a related finance company, as provided by Tax Code, §152.0475 (Registration of Related Finance Company). Similarly, tax acceleration does not occur when the dealer making a seller-financed sale grants a security interest in a purchaser's account, but retains custody and control of the account and the right to receive payments in the absence of a default under the security agreement.

Renumbered paragraph (8), formerly paragraph (5), is amended to update the cross-reference.

Subsection (f) addresses resale certificates and exemption documentation. Paragraphs (1) and (2), addressing the resale exemption and the exemption for use out-of-state, respectively, are amended to provide the address of the comptroller website where taxpayers can find the resale certificates. The paragraphs are also amended to use the form numbers for the resale and exemption certificates.

Paragraph (3), addressing exemption certificates, is amended to make the paragraph easier to read.

Subsection (g), addressing unremitted tax paid to the seller, contains minor amendments intended to make the subsection easier to read. In addition, paragraphs (1), (2), and (3) are amended to use the defined term "Application for Texas Title and/or Registration."

No comments were received regarding adoption of the amendment.

This amendment is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

This amendment implements Tax Code, §§152.001 (Definitions), 152.002 (Total Consideration) 152.0411 (Collection by Sellers), 152.047 (Collection of Tax on Seller-Financed Sale), and 152.0472 (Determination of Whether Loan is Factor, Assigned, or Transferred).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 28, 2017.

TRD-201701710

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: May 18, 2017

Proposal publication date: March 10, 2017

For further information, please call: (512) 475-0387