The only way for a dealer to avoid tax and transfer obligations is to unwind the deal completely; in other words, take the vehicle back and return the customer’s money.
In BHPH, most dealers utilize deferred sales tax, meaning they only collect and remit tax on monies received. This takes much of the sting out of transferring a vehicle on a first or second payment default repo, since tax is only due on the down payment (and any other monies received). The dealer is still on the hook for the title, registration and other fees due at the county, however.
In retail, that transfer is a lot more painful because motor vehicle sales tax is likely due in full, since a non-BHPH dealer would not hold a deferred sales tax permit. In this case the dealer may actually be better off unwinding the deal, as the TT&L might exceed the down payment received. As discussed in the December 2014 Regulation Matters column, retail dealers might consider utilizing a conditional delivery agreement to avoid some of the headaches associated with being an unintended lienholder.
(By the way, you can access that column at www.txiada.org >> Resources >> Knowledge Base, with a Keyword Search “Conditional.” All my columns are Members-Only, so be sure you are logged in. Isn’t the new website great??)
Obviously there are a lot more considerations, complications and other problems associated with defaults and repossessions. But when it comes to titles, the mantra is simple: you need to transfer the title or you need to unwind the deal.
*This article originally appeared in the April 2016 edition of the Texas Dealer magazine. Reprinted with permission of TIADA.