Motor Vehicle Tax Guide

Texas Emissions Reduction Plan (TERP) Surcharge

The Texas Legislature created the Texas Emissions Reduction Plan (TERP) to provide grants and other incentives for improving air quality throughout the state and to comply with federal Environmental Protection Agency air quality standards. TERP provides funding for cleaner on-highway and off-highway engines, energy efficiency programs, cleaner fuels and other infrastructure programs, and research and development of related new technologies.

TERP Surcharge

The TERP surcharge applies to the purchase of diesel-powered, on-highway motor vehicles with a gross motor vehicle registered weight exceeding 14,000 pounds. This surcharge applies to both new and used diesel-powered motor vehicles, whether purchased in Texas or out of state. The TERP surcharge does not apply to motor vehicles operated with gasoline, compressed natural gas (CNG) or liquefied natural gas (LNG).

Excluded from this surcharge are recreational vehicles (RVs) with a gross motor vehicle registered weight exceeding 14,000 pounds that are not held or used for the production of income.

The TERP surcharge is administered in the same manner as motor vehicle sales and use tax. The same exemptions that apply to motor vehicles, including the interstate exemption for certain heavy-duty trucks and trailers, apply to the TERP surcharge.

Rentals

Purchases of motor vehicles for rental use are subject to the TERP surcharge. The surcharge is due at the time of titling and registration and cannot be deferred, even if the purchaser is allowed to defer the motor vehicle sales and use tax. The surcharge does not apply to rental contracts.

Leases

A person who purchases or brings a motor vehicle into Texas for lease must pay the TERP surcharge based on the total consideration paid by the owner at the time of registration and titling. The surcharge is not due on the lease receipts paid to the motor vehicle owner.

TERP Registration Surcharge

Funding for the TERP also includes a 10 percent surcharge on truck-tractor or commercial motor vehicle registration fees and a portion of the title application fee (from some counties) as prescribed by the Texas Transportation Code. These are remitted directly to the Comptroller’s office by the county tax assessor-collector (CTAC).

TERP Surcharge Rate

The surcharge rate for the purchase or use of motor vehicles for model years 1996 and earlier is 2.5 percent, while the rate for model years 1997 and newer is 1 percent. The surcharge is due at the time of titling and registration.

The TERP surcharge is calculated on the sales price less the value of any trade-in or valid fair market value deductions to reduce the sales price. Standard presumptive value (SPV) procedures apply in private-party purchases.

Dealer Responsibility

Dealers should collect the TERP surcharge on qualifying motor vehicles at the same time and in the same manner as registration fees and motor vehicle sales tax. Dealers pay the surcharge to the CTAC at the time of titling and registration, just like motor vehicle sales tax. Late payment penalties may apply.

Seller-financed dealers must collect the surcharge, when applicable, on payments and report surcharge collections on the same return used to report motor vehicle tax, Form 14-117, Texas Motor Vehicle Seller-Financed Sales Tax and/or Surcharge Report (PDF).

Purchaser Responsibility

Purchasers who do not pay the surcharge to the selling dealer must pay it to their CTAC within 30 calendar days of either purchasing the vehicle in Texas or bringing the vehicle into Texas from out of state. Late payment penalties may apply.

96-254
(09/2021)

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