You believe that the lender has possession of the vehicle once it is at the dealership. A person paid for repossession services is selling a taxable debt collection service. As such, sales tax must be collected on the total charge to the lender including separately stated charges for transportation to an auction site. However, your next question addresses hether repossession services even occur in the first scenario. In that circumstance, only a nontaxable transportation service is provided because no repossession service occurs.
Lender needs to repossess a vehicle.
Lender has the towing company repossess the vehicle and tow it back to the towing company's vehicle storage facility. The vehicle is stored at the towing company's storage facility until the ten day period in which the borrower can pay for the vehicle and retake possession has expired. The towing company is then instructed to tow the vehicle to the automobile auction. Your position under this scenario is that the repossession, towing to the storage facility and fee for storing the vehicle are taxable to the lender. However, you feel that the lender does in fact have possession of the vehicle since they determined where to store the vehicle and when to deliver it to auction.