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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER FMOTOR VEHICLE SALES TAX
RULE §3.78Motor Vehicle Rentals

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

  (1) Gross rental receipts--Any amount of money or the value of property received by or due the owner of a motor vehicle as consideration for the rental of the vehicle to another including a reimbursement charge for property tax, title fee, and registration fee expenses. Gross rental receipts does not include and tax is not due on:

    (A) a separately stated fee or charge for insurance;

    (B) an assessment for damage to the vehicle which occurred during a rental agreement period;

    (C) separately stated receipts for motor fuel sold by the owner of the vehicle;

    (D) discounts; or

    (E) any amount of gross rental receipts tax collected by or due the owner of the vehicle.

  (2) Owner--The person named in the Texas certificate of title of a motor vehicle as the owner of the vehicle, or a person having exclusive use of a motor vehicle under a rental agreement and who holds the motor vehicle for re-rental.

  (3) Rental or renting--An agreement whereby:

    (A) the owner of a motor vehicle gives exclusive use of the vehicle to another for a consideration and for a period of time not to exceed 180 days under any one agreement;

    (B) an original manufacturer of motor vehicles gives exclusive use of a motor vehicle to another for a consideration; or

    (C) the owner of a motor vehicle gives exclusive use of the vehicle to another for re-rental purposes, regardless of the period of time covered by the agreement.

  (4) Rented in Texas--A motor vehicle is "rented in Texas" when the vehicle is delivered to the renter in Texas regardless of the location of the rental agency. A motor vehicle is not "rented in Texas" if the vehicle is delivered to the renter outside the State of Texas or to a common carrier for transportation to the renter outside of Texas.

  (5) Retailer--Any owner of a motor vehicle who is responsible for collecting and reporting motor vehicle gross rental receipts tax pursuant to the Tax Code, §152.045.

(b) Application of tax.

  (1) When a motor vehicle is rented in Texas, all of the rental receipts are subject to the Texas motor vehicle gross rental receipts tax. If a person who rents a motor vehicle in Texas subsequently moves the vehicle to another state and pays a legitimately imposed rental receipts tax or sales and use tax, he may claim a credit in the amount of the tax paid to the other state against any Texas motor vehicle gross rental receipts tax due after payment of the tax to the other state.

  (2) If a motor vehicle is not rented in Texas, the gross rental receipts from the rental are not subject to the Texas motor vehicle gross rental receipts tax.

(c) Bad debt.

  (1) Tax not due on bad debt.

    (A) A retailer may take a deduction for rental receipts that are determined to be uncollectible during the same report period in which the rental was made if:

      (i) the uncollectible amount of gross rental receipts is entered on the retailer's books as a bad debt; and

      (ii) the bad debt will be claimed as a deduction for federal income tax purposes.

    (B) A retailer who has previously paid motor vehicle gross rental receipts tax may take a deduction or seek a credit for the tax paid on the gross rental receipts that are determined uncollectible if the uncollectible amount is entered on the retailer's books as a bad debt and claimed as a deduction for federal income tax purposes.

      (i) The deduction must be taken or credit claimed for the period in which the amount was determined uncollectible.

      (ii) If the uncollectible amount includes taxable and nontaxable receipts as defined in subsection (a) of this section, a deduction or credit may be claimed for only the amount that represents taxable receipts.

      (iii) To determine the amount that represents taxable receipts, all payments and credits may be applied proportionally against the fees the customer agreed to pay.

    (C) If a retailer subsequently collects all or any part of a taxable amount previously determined uncollectible and charged off for income tax purposes as a bad debt, the taxable amount collected, as defined in subparagraph (B)(iii) of this paragraph, must be included in gross rental receipts on the return filed after such collection and the proper amount of tax must be remitted.

  (2) Records required. To support a claim for a bad debt deduction or credit, a retailer must maintain complete records which document:

    (A) the vehicle identification number, the year, and the model of the vehicle or vehicles involved;

    (B) the date of the rental for which a deduction or credit is claimed;

    (C) the name and address of the customer;

    (D) the amount the customer agreed to pay;

    (E) any amount on which the retailer has already paid tax;

    (F) any payment or other credit applied to the account; and

    (G) evidence that the amount determined to be uncollectible has been legally charged off as a bad debt for federal income tax purposes.

  (3) Credit. Credit does not qualify as a bad debt. When a retailer extends credit to a customer making a rental, the amount of credit so extended may not be labeled as a bad debt merely for the purpose of delaying the payment of tax.

(d) Direct payment qualifications and procedures.

  (1) A holder of a motor vehicle rental tax direct payment permit may give an exemption certificate in lieu of paying the taxes for motor vehicles which are rented by the permit holder solely for its own use. A limited sales, excise, and use tax direct payment blanket exemption certificate may not be issued for the rental of motor vehicles.

  (2) An applicant for a motor vehicle rental tax direct payment permit must comply with the following:

    (A) The applicant must be a responsible person paying annually at least $800,000 in taxable motor vehicle rentals.

      (i) The $800,000 does not include any rentals paid by the applicant for vehicles that are to be re-rented.

      (ii) The $800,000 does not include any payments made on motor vehicle purchases or leases. An application for a permit must be accompanied by a statement that the applicant meets all the conditions of this section, along with sufficient records to support the statement.

    (B) The applicant must be able to establish to the satisfaction of the comptroller that its accounting methods clearly distinguish between rentals of motor vehicles and leases, rentals, and purchases of other tangible personal property taxed under the Sales Tax Act. A clear description of the applicant's accounting methods must accompany any application for a permit.

    (C) The applicant must agree to accrue and pay the motor vehicle rental tax on a separate return from the taxes imposed by the Sales Tax Act. The applicant must also agree to make the motor vehicle rental tax payments to the state on or before the 20th day of the month following each month in which the motor vehicles are rented. A written agreement to this effect will be furnished by the comptroller; it must be signed and returned along with any application for a motor vehicle rental direct payment permit.

  (3) Applicants for a motor vehicle rental direct payment permit should write and request an application from the Comptroller of Public Accounts, Austin, Texas 78774.

  (4) Any person whose motor vehicle rental direct payment permit is either voluntarily forfeited or cancelled by the comptroller's office must immediately notify all owners of the tax-exempt motor vehicles he rents, advising them that the exemption certificate issued to them is no longer valid.

  (5) The motor vehicle rental direct payment permit may be used only by the legal entity (including its branches and divisions) to which it is issued. A permit holder may not authorize any other person or firm, including related corporations, to rent a motor vehicle tax free by using its permit. Use by other persons or firms is grounds for revocation of the permit.

  (6) Under no circumstances may a permit holder give a motor vehicle rental tax direct payment exemption certificate to a contractor making an improvement to realty for the permit holder under either a separated or lump-sum contract. A contractor who does not personally hold a motor vehicle rental direct payment permit and who rents a motor vehicle for use in performing a contract must pay the motor vehicle rental tax to the owner of the rented motor vehicle.

  (7) The holder of a valid motor vehicle rental tax direct payment permit must accrue the motor vehicle rental tax on any motor vehicles rented in Texas and subsequently used out of state.

  (8) A motor vehicle direct payment permit holder must file a monthly return whether or not it has any motor vehicle rental tax to report. Failure to file returns timely will subject the holder to penalties and interest and revocation of the permit.

  (9) A motor vehicle rental tax direct payment exemption certificate must comply substantially with the following certificate description. Each exemption certificate must bear the motor vehicle rental direct payment permit number of the permit holder.

Attached Graphic

Source Note: The provisions of this §3.78 adopted to be effective December 5, 1996, 21 TexReg 11489.

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