Texas TERP Tax: Surcharges, Title Fees, and Penalties

The Texas TERP surcharge is an add-on to sales and use tax that funds the Texas Emissions Reduction Plan, and it comes in two forms: a 1% or 2.5% surcharge on diesel motor vehicles over 14,000 pounds, and a flat 1.5% surcharge on off-road heavy-duty diesel equipment. The rate you owe depends on which category the transaction falls into and, for on-road vehicles, on the engine’s model year. Dealers usually collect it at the point of sale, but private buyers and out-of-state purchasers have direct filing obligations of their own.

On-Road Diesel Vehicle Surcharge

Texas Tax Code Section 152.0215 imposes a surcharge on every retail sale, lease, or use of a diesel motor vehicle weighing more than 14,000 pounds. The rate turns on the engine model year:

Model year 1997 or later: 1% of the total consideration paid.
Model year 1996 or earlier: 2.5% of the total consideration paid.

Total consideration means the sales price minus trade-in value or any valid fair market value deductions. Private-party purchases use standard presumptive value procedures to set the taxable amount.¹

The surcharge covers new and used vehicles alike, whether bought inside Texas or purchased out of state and brought in. Recreational vehicles are outside the surcharge as long as they are not held or used to produce income.²

Off-Road Heavy-Duty Diesel Equipment Surcharge

A separate surcharge applies to the retail sale, lease, or rental of off-road heavy-duty diesel equipment such as excavators, cranes, loaders, bulldozers, and similar machinery. The rate is a flat 1.5% of the sale, lease, or rental amount, regardless of model year. The same 1.5% applies when a buyer purchases or leases off-road diesel equipment out of state and brings it into Texas for use. Sellers collect the surcharge from the buyer along with sales tax.³⁴

What Is Not Subject to the Off-Road Surcharge

Several categories of equipment fall outside the 1.5% surcharge:

Agricultural equipment eligible for the agricultural use exemption from sales tax.
Timber operations equipment qualifying for the timber exemption.
Processing equipment eligible for the manufacturing exemption.
Equipment used in exploration and production at an oil or gas well site.
Repair or replacement parts and accessories sold separately from the equipment.
Any equipment that qualifies for a sales or use tax exemption for any other reason.

That last bullet is the practical rule of thumb. The off-road TERP surcharge piggybacks on the sales tax, so a transaction already exempt from Texas sales and use tax is exempt from the surcharge too.³

Both surcharges target diesel power specifically. Equipment running on gasoline, compressed natural gas, electricity, or other alternative fuels does not trigger a TERP surcharge.

Title Application Fee in TERP-Affected Counties

Separate from the percentage surcharges, Texas Transportation Code Section 501.138 builds TERP funding into the flat fee every vehicle owner pays when titling a vehicle. The amount depends on where you live:

Non-attainment or affected county: $33 per title application.
All other counties: $28 per title application.

Non-attainment areas are regions that fail to meet federal Clean Air Act air quality standards, along with counties designated as affected under Texas Health and Safety Code Section 386.001. State agencies and political subdivisions of Texas are exempt from this title fee.⁵

How to File and Pay

The two surcharges follow different paths. On-road and off-road transactions do not share a return.

On-Road Motor Vehicle Surcharge

Dealers collect the on-road TERP surcharge along with motor vehicle sales tax and remit it through the county tax assessor-collector. Private buyers pay the surcharge at the same office when they register and title the vehicle. If you buy from a private party or bring a vehicle in from out of state, you have 30 calendar days to pay your county tax assessor-collector. There is no separate return for this surcharge; it is handled the same way as motor vehicle sales and use tax.⁶

Off-Road Equipment Surcharge

Sellers report and pay the off-road surcharge on Form 01-142, the Texas Off-Road, Heavy-Duty Diesel Equipment Surcharge Return. How often you file depends on how much surcharge you collect:

$1,500 or more per month: file monthly.
Less than $1,500 per month: file quarterly.

Returns must be filed or postmarked by the 20th day of the month following the end of each reporting period. March activity, for example, is due by April 20.

Businesses that paid less than $500,000 in total taxes during the preceding state fiscal year can pay through the Comptroller’s Webfile system by electronic funds transfer or credit card, through TEXNET, or by mailing a check with the return. Businesses that paid $500,000 or more must use TEXNET.³

Late Filing and Payment Penalties

On the off-road return, the penalty clock starts fast:

Late report: $50 penalty per return filed after the due date.
Payment 1 to 30 days late: 5% penalty on the unpaid amount.
Payment more than 30 days late: 10% penalty on the unpaid amount.
Interest begins accruing 61 days after the due date.

The penalties stack. A return filed two months late owes the $50 filing penalty, the 10% payment penalty, and interest. The Comptroller generally has four years from the date the surcharge became due to audit for compliance.³

Refunds for Overpayment

Overpayment on the off-road surcharge is common when equipment qualifies for an exemption the seller did not apply at the sale. Who files the refund claim depends on your role.

A seller who holds a surcharge permit and remitted the money directly to the Comptroller can file the refund claim. A buyer who paid the surcharge to a seller must first ask the seller for a refund. If the seller cannot issue one, the buyer can request Form 00-985, Assignment of Right to Refund, which authorizes the buyer to file directly with the Comptroller.

Refund claims must be in writing, identify the period of overpayment, and state the grounds for the refund. The deadline is four years from the date the surcharge was due. If the Comptroller denies the claim in whole or in part, you have 60 days from the denial to request a refund hearing.⁷

Where the Money Goes and How Long It Lasts

Revenue from the TERP surcharges funds air quality grants administered by the Texas Commission on Environmental Quality, including rebate grants and competitive incentive grants that help pay to replace or repower older diesel vehicles and equipment. Program details, eligibility rules, and application windows are posted on the TCEQ TERP website.⁸

The on-road motor vehicle surcharge has a built-in sunset. Under Tax Code Section 152.0215, it expires at the end of the state fiscal biennium during which TCEQ publishes notice in the Texas Register that the program’s air quality goals have been met.²

1
Texas Comptroller of Public Accounts. Motor Vehicle Tax Guide – Texas Emissions Reduction Plan (TERP) Surcharge
2
State of Texas. Texas Tax Code Section 152.0215 – Texas Emissions Reduction Plan Surcharge
3
Texas Comptroller of Public Accounts. Off-Road, Heavy-Duty Diesel Equipment Surcharge
4
Legal Information Institute. 34 Texas Admin Code 3.320 – Texas Emissions Reduction Plan Surcharge; Off-Road, Heavy-Duty Diesel Equipment
5
State of Texas. Texas Transportation Code Section 501.138
6
Texas Comptroller of Public Accounts. Motor Vehicle – Texas Emissions Reduction Plan (TERP) Surcharge
7
Texas Comptroller of Public Accounts. Texas Emissions Reduction Plan (TERP) – Off-Road, Heavy-Duty Diesel Equipment Surcharge Refunds
8
Texas Commission on Environmental Quality. TERP Grant Programs