taxes

Motor Vehicle Tax Guide

Business Entities – Partnerships

Partnerships are considered legal entities separate and apart from the individual members.

A general or limited partnership is similar to a corporation; both entity types may own property and engage in business and both are responsible for their debts. While corporations are legal entities composed of individual stockholders, partnerships are legal entities composed of individual members. The members of a partnership may be individual persons or other legal entities such as a partnership or corporation.

Formation/Organization or Dissolution/Termination of a Partnership

A limited partnership (LP) or limited liability partnership (LLP), registered with the Secretary of State (SOS), may add or remove a partner without terminating itself or organizing a new partnership as an entity.

By contrast, unless there is a partnership agreement that indicates otherwise, a general partnership is presumed to have terminated the old partnership and established a new partnership when a change in members occurs.

The taxability of these events in relation to motor vehicles is described in the sections below.

Transfers to Newly Formed/Organized Partnership

When a partner transfers a motor vehicle to a partnership upon formation/organization of the partnership, the following guidelines apply:

• If the partnership pays no consideration, no motor vehicle tax is due. No taxable sale has occurred.
• If the partnership pays consideration, motor vehicle tax is due and standard presumptive value (SPV) procedures may apply.

Transfers to an Existing Partnership

When a partner transfers a motor vehicle to an existing partnership, regardless of whether the partnership pays consideration, motor vehicle tax is due. SPV procedures may apply.

Transfers Upon Dissolution/Termination of a Partnership

When a partnership dissolves/terminates and transfers a motor vehicle to an individual partner as a portion of the assets, the following guidelines apply:

• If the dissolving/terminating partnership transfers a motor vehicle for no consideration to a partner, no motor vehicle tax is due. The partner received the motor vehicle as all or part of their share of the assets of the dissolved/terminated partnership.
• If a partner assumes a lien on a motor vehicle or gives the dissolving/terminating partnership any consideration, motor vehicle tax is due and SPV procedures may apply.

Changes in Partners

When a partner joins or leaves a partnership and the partnership entity remains intact, the following guidelines apply:

• If a new partner joins an existing partnership and contributes a motor vehicle, motor vehicle tax is due whether or not consideration is paid. SPV procedures may apply.
• If a partner leaves a partnership and the partnership transfers a motor vehicle into the partner’s personal name, motor vehicle tax is due whether or not the partner paid consideration. SPV procedures may apply.

If the change of partner(s) causes the partnership entity to dissolve/terminate, the two above guidelines do not apply. For example, a general partnership without a partnership agreement that provides for the continuation of the partnership entity upon a change of partner(s) automatically dissolves. See Transfers Upon Dissolution/Termination of a Partnership on this page. If a new partnership entity is then formed/organized, see Transfers to Newly Formed/Organized Partnership on this page.

Incorporation of a Partnership

When a partnership incorporates and transfers a motor vehicle from the partnership name to the corporate name in connection with that incorporation, the following guidelines apply:

• If a newly formed corporation pays no consideration (other than stock) to the partnership, no motor vehicle tax is due. The owners of the business simply have adopted a different form of doing business. The transfer of a motor vehicle to the newly formed corporation is an operation of law. No sale has occurred.
• If the corporation pays consideration to the partnership, a private-party sale has occurred, and motor vehicle tax is due since the corporation purchased the vehicle from the partnership. SPV procedures may apply.

When a partnership converts to a different entity type, no motor vehicle tax is due on motor vehicles transferred to the resulting entity following the conversion. In a conversion, which is an operation of law, transfer of liens with motor vehicles does not constitute consideration since the conversion, by statute, is not a sale; therefore, no taxable event has occurred. A certificate of conversion issued by the SOS is evidence of a conversion.

Lien Assumption

Any motor vehicle transfer involving the assumption of a lien is subject to motor vehicle tax and SPV procedures may apply.

Partnership as a New Resident

When a partnership enters Texas for the first time to establish residency and begins doing business, the partnership qualifies as a new resident.

To qualify as a new resident, the partnership cannot be presently doing business in Texas or already be domiciled in Texas.

When a partnership brings a motor vehicle into Texas as a new resident, the following guidelines apply:

• If the partnership owned the motor vehicle and brought it into Texas at the time they partnership became a new resident, and they previously registered the motor vehicle in the partnership name in another state or country, the $90 new resident tax applies.
• If the partnership had not previously registered the motor vehicle in the partnership name in another state or country, motor vehicle use tax is due. SPV procedures may apply when the seller is a private-party. Credit may be applied for any legally imposed sales or use tax paid to another state, including any political subdivisions of that state, Puerto Rico, or U.S. possession or territory. Credit may not be applied for sales or use tax paid to another country.
• If the partnership acquired the motor vehicle out of state and brought it into Texas for public highway use after the partnership became a resident, motor vehicle use tax is due. SPV procedures may apply when the seller is a private-party.

96-254
(09/2021)