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THE A-ITORNEY GENERAL
OF TEXAS
AURTIN. TNXAS 78711
August 26. 1974
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The Honorable Robert S. Calvert Opinion No. H- 380
Comptroller of Public Accounts
State of Texas Re: Taxation of rented
Austin, Texas automobiles under
Article 6.01. Taxation-
General, V. T. C. S.
Dear Mr. Calvert:
You have asked for an opinion on a variety of questions arising
under the Motor Vehicle Retail Sales and Use Tax Act, Art. 6.01,
Taxation-General, V. T. C. S., which levies a tax on the sale, rental,
and lease of motor vehicles as follows:
(1) There is hereby levied a tax upon every
retail sale of every motor vehicle sold in this
State, such tax to be equal to four percent (4%)
of the total consideration paid or to be paid for
said motor vehicle. In the case of a motor
vehicle purchased to be rented or held for
rental. the tax is levied on the gross rental
receipts of the renting of such motor vehicle
at the same rate as that tax levied in Article
20.02 of this title. Provided, however, that
where the period for rental is intended to be
for more than 31 days, such rental is deemed
to be a lease as defined in this Article and the
purchaser-lessor must pay the tax on total
consideration paid or to be paid for said motor
vehicle. The tax on rental receipts shall be
collected by the owner from the renter who has
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The Honorable Robert S. Calvert page 2 (H-380)
exclusive use of the motor vehicle for a period
of time and has the right to direct the manner
of use of the vehicle, whether exercised or not,
for that period. It is unlawful and shall be a
rmsdemeanor for the owner of the rented motor
vehicle to advertise that the tax or any part thereof
will be absorbed or assumed by the renter.
You first ask whether the tax imposed by Art. 6.01, can, consistent
with the Federal Constitution, be collected when a motor vehicle is rented
to an employee of the federal government for use on government business.
As long ago as 1819 in the historic case of McCulloch v, Maryland, 4 Wheat
316. 4 L. ed. 579 (1819), the Supreme Court declared unconstitutional a
state tax~on the Bank of the United States because, according ‘to Chief
Justice Marshall, it amounted to a “tax on the operation of an instrument
employed by the government of the Union to carry its powers into execution. ‘I
In a long line of subsequent decisions the Court has consistently held that
the federal government and its agencies are constitutionally immune from
state exactions. First Agricultural National Bank v. Tax Commission, 392
U.S. 339 (1968) and cases cited therein.
Of particular relevance in answering lhe question you have asked
is Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954). In this case
goods had been purchased for use in the construction of an ammunition
depot for the United States; the seller of the goods paid the tax owed by
virtue of the transaction and then brought suit for a refund. The Court
found that under the contract in question the United States was the actual
purchaser of the goods and then reaffirmed its earlier holdings that the
United States cannot constitutionally be subjected to the payment of state
sales taxes. Since the seller could not collect the tax, he could not be
held responsible for the payment of it and was entitled to a refund.
Kern-Limerick, Inc. v. Scurlock firmly establishes the proposi-
tion that the federal government is constitutionally immune from the
payment of state sales taxes and that those who sell to the government may
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The Honorable Robert S. Calvert page 3 (H-380)
not be held responsible for collecting such taxes. Thus, the motor vehicle
sales tax imposed by Art. 6.01 cannot be collected from the federal
government or its agencies. When an owner of vehicles for rent has
been adequately assured, by affidavit or otherwise, that the renter is an
employee of the federal government acting on government business and
within the scope of his employment, then he should not collect the sales
tax that ordinarily would be due on the transaction.
In your second question you ask whether any sales tax would be
due where a renting and leasing firm supplies a vehicle held for rental
to a customer to be used as a substitute for a vehicle leased to that
customer but which is temporarily being repaired. The Motor Vehicle
Retail Sales and Use Tax distinguishes between a vehicle held for rental
and one held for lease. A vehicle is held for rental if its exclusive use
is to be given to another for a consideration and for a period of time not
exceeding thirty-one days under any one agreement. Art. 6.03 (E),
Taxation-General. When a firm purchases a vehicle to be held for rental,
it does not pay the motor vehicle sales tax; instead, the tax is levied on
the gross rental receipts derived from rentiig the vehicle and must be
collected by the owner from the renter. Art. 6.01 (11, Taxation-General.
On the other hand, a vehicle is deemed to be held for lease if its exclusive
use is to be given to another for a consideration and for a period of time
exceeding thirty-one days. Art. 6.03 (F), Taxation-General. When a
renting and leasing firm purchases a vehicle to be held for lease, then it
must pay the motor vehicle sales tax on the t,otal consideration paid or to
be paid for the vehicle; the lessee is not required to pay any tax. Art.
6.01 (l), TaxationGeneral. When a person, or firm, engages in both
renting and leasing, he must keep adequate records enabling the two
types of transactions to be segregated. Art. 6.01 (7), Taxation-General.
The answer to your second question depends, then, upon whether
under the agreement between the parties the customer must pay anything
more in order to have another vehicle substituted for the one he originally
leased when repairs have become necessary. If so, any additional amounts
paid must be considered gross receipts from the renting of a vehicle, and
a sales tax equal to four per cent of the additional consideration paid would be
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The Honorable Robert S. Calvert page 4 (H-380)
owed. If no additional charge is made, then no gross receipts are
derived from the vehicle held for rental. and no sales tax would be
due.
Your n;xt question concern; Art. 6.01(8), Taxation -General,
which provides:
(8) When the owner of a motor vehicle changes
the status of the motor vehicle from a rental unit
to a lease unit, the owner shall so inform the State
Comptroller of Public Accounts of such change on
a form to be supplied by the Comptroller, and the
owner shall then pay the tax on such motor vehicle
based on the owner’s book value and at the rate
provided in this Article.
In executing his responsibilities under this provision, the Comptroller
has promulgated a regulation establishing a depreciation rate of two per
cent per month to be used in determining the book value of a vehicle the
status of which is to be changed from a rental unit to a lease unit. You
ask whether such a regulation is valid.
The term “book value” generally refers to the cost of merchandise
less depreciation. Black’s Law Dictionary 227 (4th ed., 1951). It can be
presumed that in enacting Art. 6.01(8) the Legislature used this term in
accordance with its normal meaning. Art. 5429b-2, $2.01, V.T.C.S.
(The Code Construction Act). But the Legislature specified no rate of
depreciation to be used in determining the book value, nor did it authorize
the Comptroller to do so. Instead it provided that the tax owed when the
status of a vehicle is changed from rental to lease should be based on the
“ownerIs book value” thereby leaving the method of arriving at the book
value initially within the owner’s discretion. So long as the rate of
depreciation used by the own&r is reasonable and not contrary to established
accounting practices, it will be valid. The Comptroller cannot require
owners to use a depreciation rate of two per cent per month, and any
regulation attempting to do so would, in our opinion, be invalid. The
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The Honorable Robert S. Calvert page 5 (H-380)
Comptroller could promulgate guidelines advising owners that he will
challenge as unreasonable the use of a particular depreciation method
or a rate in excess of a certain amount per month, but he cannot establish
any one rate as the only valid done.
Your final question is whether the motor vehicle sales tax becomes
due when the owner of the vehicle held for rental converts it to his own
personal or business use. The owner of a vehicle held for rental is
permitted to register it for use on the state’s highways without paying any
sales tax. Instead, the tax is levied on the gross receipts derived from
renting the vehicle and is paid by the renter. Art. 6.01 (l)(6), Taxation-
General. But it is plain that the Legislature in providing for the registra-
tion of rent vehicles without payment of the sales tax did not intend to
permit renting firms and their owners to escape payment of the sales tax
owed on vehicles held for their personal or business use.
Art, 6.01 imposes a tax on every retail sale of a motor vehicle.
The term “retail sale” is defined in Art. 6.03 (B), Taxation-General, so
as to include all sales of motor vehicles except those in which the vehicle
is acquired for the exclusive purpose of resale or rental and not for use.
A vehicle which was initially purchased to be held for rental but is
subsequently converted to the personal use of the owner has not been acquired
exclusively for the purpose of resale or rental. Therefore the original
transaction in which it was acquired is a retail sale on which a motor
vehicle sales tax must be paid. See Attorney General Opinion M-913 (1971).
Our answer to your final question is in the affirmative; when a
vehicle held for rent is converted to the personal or business use of its
owner, the motor vehicle sales tax becomes due.
SUMMARY
The federal government is constitutionally
immune from the payment of state sales taxes.
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The Honorable Robert S. Calve.rt page 6 (H-380)
When a motor vehicle held for rent is converted
to the personal or business use of its owner, the
motor vehicle sales tax becomes due. The term
“owner’s book value” refers to the cost df a motor
vehicle less reasonable depreciation.
Very truly yours,
Attorney General of Texas
APPR&ED:
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Ass stant
DAVID M. KENDALL, Chairman
Opinion Committee
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Untitled Texas Attorney General Opinion
Combined Opinion