Vehicle Incentive Programs and Motor Vehicle Tax
Two programs - Aircheck Texas and the Car Allowance Rebate System (CARS) - provide incentives to help buyers purchase a fuel efficient motor vehicle. Both programs reduce the amount of tax due on the purchase of a new motor vehicle. Below is more detail on each of these.
Car Allowance Rebate System (CARS)
President Obama recently signed into law a program that the National Highway Traffic Safety Administration (NHTSA) is calling the Car Allowance Rebate System (CARS), better known as "Cash for Clunkers." This is a federal government program that provides funds to help car buyers purchase a new fuel efficient vehicle when trading in a less efficient vehicle. Used vehicle purchases do not qualify under the program.
The program is effective July 1, 2009, and ends Nov. 1, 2009, or when the funds are exhausted, whichever comes first.
The amount of the credit is $3,500 or $4,500, depending on the type of new vehicle acquired and the difference in fuel economy between the new vehicle and the trade-in vehicle. Different requirements apply to work trucks.
Participating new car dealers will apply the credit toward the sales price of qualifying new vehicles if the vehicle purchased and the vehicle that is traded in both meet the program requirements. The dealer will then obtain reimbursement from the government.
The dollar amount of the credit provided by the federal government to the selling dealer is not subject to motor vehicle sales tax. The amount of the rebate should be indicated on Line 21(b) of the title application (Form 130-U). The description of the traded-in vehicle should be shown on Line 20 of Form 130 - U.
For more information on the program see www.cars.gov.
The AirCheckTexas program, administered by participating counties and councils of governments, provides vehicle replacement grants, as well as vehicle repair assistance, to low income owners of polluting vehicles. If your car is 10 or more years old, or has failed an emissions test, and has been registered for at least the 12 preceding (consecutive) months in certain counties, you may be eligible to receive a voucher towards the purchase of a new (or used) motor vehicle or repair of your current vehicle. Qualifying vehicle owners in these counties are eligible for the program: Brazoria, Collin, Dallas, Denton, Ellis, Fort Bend, Galveston, Harris, Johnson, Kaufman, Montgomery, Parker, Rockwall, Tarrant, Travis or Williamson.
Vehicle Replacement Grants
The maximum grant amount under the AirCheck Texas program is $3,500. Tax Code subsection 152.002(b)(8) excludes the amount of the grant from total consideration paid for a motor vehicle. For this reason, the amount of the grant is not subject to motor vehicle sales tax.
Vehicle Repair Assistance Program
As in the case of all motor vehicle repairs, parts used to repair qualifying motor vehicles under the AirCheckTexas program are subject to state sales tax. Tax Code Section 151, does not provide an exemption for parts purchased under the AirCheckTexas program; however, no sales tax is due on repair parts that are paid for with funds paid directly to the service provider by the counties participating in this program.
Payments received from the county should be applied to taxable parts first. Tax is due on taxable repair parts above the amount of the grant payment. For example, a car repair bill totals $1,250. The taxable parts on the separated bill total $750, and the non-taxable labor totals $500. The program pays $600 directly to the service provider who applies the payment to taxable parts first, reducing the balance due on the parts portion of the bill to $150. The vehicle owner will owe tax on the remaining $150 for taxable parts when settling the account in addition to the labor cost. Exemption certificates are not required.
For more information about the Aircheck Texas program see www.tceq.state.tx.us/implementation/air/mobilesource/vim/driveclean.html
For more information about the taxability of motor vehicle repairs and parts, see our publication 94-113.
Please feel free to contact us by phone at (800) 252-1382 or by email with any tax question.