What Sales Tax is Due on a Totaled Vehicle?

Recently, TIADA received questions to its Compliance Consultation Service regarding sales tax due on a totaled vehicle. . .

Recently, TIADA received questions to its Compliance Consultation Service regarding sales tax due on a totaled vehicle. When a vehicle is involved in an accident and the insurance carrier declares the vehicle a total loss, a lien holder may consider him/herself fortunate. 

After all, the declaration means, at a minimum, that:
  1. the collateral was covered by insurance;
  2. an insurance carrier actually adjusted the claim; and
  3. payment may arrive at some point. Motor vehicle sales tax is due on all payments received pursuant to a retail installment contract.
So the Question is…
On what amount does the lien holder remit tax, the amount of the insurance payment or the amount due on the retail installment contract?
According to the Office of the Comptroller, when a vehicle is financed by a seller-financed dealer, the seller-financed dealer collects and pays the tax to the comptroller as the seller receives the proceeds of the sale. If proceeds are not received, taxes are not paid.

This is deferred sales tax 101, for which all respect is due to the many TIADA board members and friends who worked tirelessly to pass legislation allowing BHPH dealers to pay sales tax solely on the payments received. If a vehicle becomes a total loss the payment received from the insurance company is taxed as proceeds. If following a total loss, an amount of the loan is forgiven, then the seller-financed dealer is relieved of the responsibility to collect motor vehicle sales tax on that forgiven portion. 


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