Texas Sales Tax Audit for Vehicle Repossession and Title Transfers
Joe Lemon’s famously used like-new selection of vintage 60’s cars, with easy financing available.
What Happens When a Buy-Here-Pay-Here Dealership Fails to Transfer the Title Within 60 Days?
When a buy-here-pay-here car dealership does not transfer the title within the 60-day period and the vehicle is repossessed for nonpayment, the following rules apply:
Motor vehicle sales tax is due on each retail sale of a vehicle even if the vehicle was subsequently repossessed.
Additionally, with regard to dealers who make seller-financed sales, the Texas Comptroller has specifically stated:
Dealers who fail to register the vehicles within the 60-day time period will owe tax on the full consideration even if the vehicles are repossessed within the 60-day period.
Applicable Law
Tax Code References
A tax is imposed on every retail sale of every motor vehicle sold in this state.
Tex. Tax Code §§ 152.001(1), .021(a)
The tax is imposed on the total consideration paid or to be paid for a motor vehicle.
Tex. Tax Code § 152.002(a)
A retail sale completed by a motor vehicle dealer, in which the seller collects all or part of the total consideration in periodic payments and retains a lien on the motor vehicle until all payments have been received, is defined as a seller-financed sale.
Tex. Tax Code § 152.001(15)
Tax Payment Requirements for Seller-Financed Sales
Generally, the seller of a motor vehicle must report and pay the tax imposed on a seller‑financed sale to the Comptroller on the seller’s receipts from the seller-financed sales in the same manner as sales tax is reported and paid under Chapter 151.
Tex. Tax Code § 152.047(a)
If the seller fails to apply, not later than the 60th day after the date the motor vehicle is delivered to the purchaser, for registration and a Texas certificate of title for a motor vehicle sold in a seller-financed sale, the seller is liable for all unpaid tax on the total consideration. The tax is due and must be sent to the Comptroller with the first report after the expiration of the prescribed period.
Tex. Tax Code § 152.047(f); 34 Tex. Admin. Code § 3.74(e)(5)
Important Reminders for Dealerships
Motor vehicle sales tax is due on each retail sale of a vehicle even if the vehicle was subsequently repossessed.
Dealers who fail to register the vehicles within the 60-day time period will owe tax on the full consideration even if the vehicles are repossessed within the 60-day period.
See: State Tax Automated Research Document No. 9309L1257C04 (September 10, 1993)
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Facing a sales tax audit in Texas?
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Frequently Asked Questions
What is the motor vehicle sales tax rule in Texas for repossessed vehicles?
Even if a vehicle is repossessed, Texas still requires the motor vehicle sales tax to be paid on every retail sale. Repossession does not exempt the dealer from the obligation to remit the tax.
What happens if a dealership doesn’t transfer a vehicle title within 60 days?
If a dealership fails to apply for title and registration within 60 days of delivery, it becomes liable for the full sales tax on the total vehicle price, even if the vehicle is repossessed before the 60-day mark.
How does seller-financing affect motor vehicle sales tax?
For seller-financed sales, the dealer must report and remit tax in the same way as standard sales tax under Chapter 151. The total consideration agreed upon in the sale determines the tax amount.
Are there penalties for not registering a vehicle on time in Texas?
Yes, dealers that fail to register vehicles within the mandated 60-day period are required to pay tax on the full sale price, regardless of repossession or payment status from the buyer.
Who is responsible for paying the sales tax in a buy-here-pay-here vehicle sale?
The seller (dealership) is responsible for paying the tax to the Texas Comptroller, even if they financed the sale. The responsibility lies with the seller to ensure timely payment and registration.