The fair market value deduction (FMVD) allows motor vehicle dealers, lessors and rental companies to replace vehicles; or non-qualified rental companies to trade in vehicles; without paying some or all of the motor vehicle tax when purchasing new vehicles.
An authorized dealer, lessor or rental company may deduct the fair market value (FMV) of one or more motor vehicles they retire from use from the purchase price of a replacement vehicle. The motor vehicle tax is due on the difference.
There are two types of motor vehicles involved in an FMVD:
For a retired motor vehicle, the dealer, lessor or rental company must
For the replacement motor vehicle, the dealer, lessor or rental company must
A lessor or rental company may deduct the FMV of a retired motor vehicle titled in Texas to another company if the lessor or rental company offers the retired motor vehicle for sale, and if either
The dealer, lessor or rental company reports and claims the FMVD at the time of titling and registration of the replacement motor vehicle with the county tax assessor-collector (CTAC). Box 38, Item (c) of Form 130-U, Application for Texas Title and/or Registration (PDF), documents the FMVD.
The applicant should check the applicable box in Box 35, and describe the retired vehicle in Box 36 and, if listing additional vehicles, Box 37 of Form 130-U (PDF).
The dealer, lessor or rental company determines the FMV in one of two ways:
The dealer, lessor or rental company may combine the FMVs of multiple retired motor vehicles for the FMVD on one replacement motor vehicle. If there is only one retired motor vehicle, however, the FMV of that single retired vehicle cannot be split among several newer, but less expensive, replacement vehicles. A dealer, lessor or rental company cannot carry any excess value forward to other motor vehicles. Also, the use of the qualifying retired vehicles cannot reduce the motor vehicle tax due to less than zero.
A motor vehicle written off as a total loss or an unrecovered stolen motor vehicle cannot be used as an FMVD.
The owner claiming the FMVD is responsible for maintaining records that document the accuracy of the FMV of the retired motor vehicle(s).
The difference between the total purchase price of the replacement motor vehicle and the FMV of the retired motor vehicle(s) determines the amount subject to motor vehicle tax. A rental company can use the FMVD to establish its minimum gross rental receipts tax liability.
For more information regarding rental companies and the FMVD, refer to Publication 96-143, Motor Vehicle Rental Tax Guide.