Can an auto repair shop pass its sales tax on consumable supplies through to the customer in the taxable repair bill?

Plain-English summary

A vehicle owner had a body repair done (paid by insurance) and was billed sales tax on the total repair, which included the shop's consumable supplies -- plastic sheeting, sandpaper, masking tape, tack cloth -- on which the shop had already paid sales/use tax. The owner argued this is impermissible "tax on tax" (pyramiding). The petition asked whether a shop may pass through those costs (including the tax it paid) and collect tax on the total.

The Office of Counsel concluded the shop may recoup those costs, including the tax it paid -- it isn't unlawful tax-on-tax.

• The shop is the user of consumables. Items consumed performing a repair that aren't permanently transferred to the customer aren't bought for resale; the shop pays sales/use tax on them as the end user (Albany Calcium Light; see also dumpsters, gas cylinders, straws/napkins cases). TSB-M-81(8)S addresses which auto-body supplies are "actually transferred."
• Costs (including that tax) ride in the taxable receipt. All expenses a vendor passes through in making a taxable sale are part of the taxable receipt (Tax Law 1101(b)(3); 20 NYCRR 526.5(e)). The shop's supply costs and the tax it paid on them are such expenses, so they're included in the customer's taxable repair charge.
• Not "tax on tax." The customer isn't being charged tax on the supplies -- the customer isn't their purchaser/user. The customer is reimbursing the shop's costs, and tax is computed on the total repair charge. How the shop itemizes the supplies (with tax shown, rolled in, or marked up) doesn't change the treatment (Tax Law 1132(a)(1) only requires the tax on the sale to be separately stated).
• Even if the repair itself is ultimately exempt (e.g., sold to an exempt organization), the shop still owes tax on the consumables, and that cost is borne by the customer.

What this means for you

Repair shops and other service vendors that consume supplies

You owe tax on the consumables you use up delivering a service (and can't buy them for resale unless you permanently transfer them). It's perfectly proper to build those costs -- including the tax you paid -- into your service price. That's reimbursement of your cost, not a second tax on the customer, so don't fear "tax on tax." Just be sure the sales tax on the customer's bill is separately stated as the law requires.

Customers reading a repair invoice

Seeing "supplies" plus tax in your bill isn't double taxation. You're paying for the service (taxed on the total) and reimbursing the shop's materials cost; the shop, not you, was the taxpayer on those materials.

Common questions

Q: Isn't charging tax on a bill that already includes the shop's tax-paid supplies illegal tax-on-tax?
A: No. You aren't being taxed on the supplies -- you didn't buy them. You're reimbursing the shop's costs, and tax is computed on the total repair charge.

Q: Does it matter how the shop shows the supplies on the invoice?
A: No. Whether the supply cost is shown with tax, rolled in, or marked up, the tax treatment of your repair is the same.

Citations and references

• Tax Law section 1105 (sales tax on tangible personal property and enumerated services)
• Tax Law section 1110 (compensating use tax)
• Tax Law section 1101(b)(3) (taxable receipt includes all expenses passed through)
• Tax Law section 1132(a)(1) (tax must be separately stated to customer)
• 20 NYCRR 526.5(e) (expenses included in taxable receipt)
• Matter of Albany Calcium Light v State Tax Commn, 44 NY2d 986 (vendor consumables not for resale)
• TSB-M-81(8)S (supplies used by auto body repair shops)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_42s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(42)S
Sales Tax
September 22, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090619A

Petitioner name and address redacted requested an advisory opinion regarding the
application of the sales and use tax to materials used and consumed by an automobile body repair
shop, and whether a repair shop may pass through to its customer as part of a bill for the taxable
service of repairing a damaged automobile the costs (including sales tax) paid by the repair shop on
items used by the shop in the repair process, and collect sales tax on the total bill including those
costs.
We conclude that to the extent items consumed by a repair shop in performing a repair to an
automobile are property purchased at retail by the repair shop, the costs for such items, including
the tax paid thereon, may be included and recouped in the taxable receipt charged its customers.
Facts
Petitioner recently had an automobile repair performed on his vehicle. The cost of
Petitioner’s repair was paid or reimbursed by an insurance company. Petitioner’s invoice for the
repair reflected that the total cost for the repair was subject to sales tax. Included within that taxable
receipt were items consumed or used by the automobile body repair shop in the course of the repair
upon which the shop was required to pay sales or use tax. These items include plastic sheeting,
sand paper, masking tape, and tack cloth. Petitioner asserts that inclusion of the sales tax paid by the
repair shop on its consumable items in computing the customer’s taxable receipt for the purchase of
goods and services constitutes an impermissible pyramiding of “tax on tax.”
Analysis
The Tax Law imposes sales tax on sales, unless for resale or otherwise exempt, of tangible
personal property and certain enumerated services (Tax Law section 1105). If the sales tax was not
paid upon purchase, the use tax is imposed on most items and services that are subject to sales tax
when purchased within the State (Tax Law section 1110). The resale exclusion applies to property
and services purchased for (i) resale as such, (ii) resale as physical component parts of tangible
personal property, or (iii) use in performing certain taxable services, including maintenance and
repair services, if the property becomes a physical component part of the property upon which the
services were performed or the property is later actually transferred to the purchaser of the service
in conjunction with the performance of the service.
Property purchased by a vendor and supplied to its customers as a component part of its
taxable services to its customers is not purchased for resale when the vendor retains ownership of
the property (Matter of Albany Calcium Light v State Tax Commn., 44 NY2d 986). Though a

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TSB-A-09(42)S
Sales Tax
September 22, 2009

vendor retains ownership of property in rental situations and may purchase rental property for resale
as such, if the property furnished to customers is inseparably connected to the service being
provided it cannot be considered to be separately sold or rented for sales tax purposes. Thus, if
property provided by a vendor to a customer is an integral and inseparable component of the
vendor’s service and the charges relating to the provision of that property cannot be reasonably
construed as arising from a separate transaction, then the property is not purchased by the vendor
for resale unless the property becomes a physical component part of the property upon which the
services are performed or is actually (i.e., permanently) transferred to the purchaser of the service in
conjunction with the performance of the services. Thus, dumpsters and trash compactors purchased
by companies selling waste removal services (U-Need-A-Roll Off Corp. v. New York State Tax
Commn. 67 NY2d 690), gas cylinders purchased by companies selling gases and gas service
(Matter of Albany Calcium Light v State Tax Commn, supra), plastic cards purchased by a company
selling prepaid phone service (US Telecom Dec Tx App Trib DTA 820160, December 7, 2006), and
straws and napkins purchased by vendors selling restaurant (fast food) services (Celestial Food of
Massapequa Corp. v. N Y S Tax Commn. supra) are retail purchases notwithstanding that the costs
for these items, including the tax paid by the vendors on those purchases, is passed through and
included in the cost of the taxable services charged their customers. See TSB-M-81(8)S, Taxable
Status of Supplies Used by Auto Body Repair Shops, May 11, 1981, for guidance on whether
specific supply items are considered to be actually transferred to the customer in connection with
the rendering of taxable auto body repair services.
Unless a specific statutory exemption applies, vendors must pay sales tax on their purchase
of items used and consumed by them in their performance of taxable services. If sales tax was not
paid at the time of purchase, the vendor is required to self-assess and pay the applicable use tax.
When vendors are required to pay tax on their retail purchases of the property they use and consume
in the performance of their services, there is nothing illegal or improper if they pass the costs of
these items, including the applicable sales and use taxes, along to their customers as part of the
customers’ charge for the purchase of property and services from the vendor.
All expenses incurred by a vendor in making a taxable sale that are passed through to the
customer are included in the taxable receipts from the sale. See Tax Law §1101(b)(3) and 20
NYCRR 526.5(e). Both the cost of items used and consumed by a vendor in providing taxable
automobile repair services and the sales tax paid by the vendor on its purchases of these items are
expenses incurred by the vendor in providing the services. Accordingly, since these expenses are
passed through to the customer, the expenses, including sales and use taxes paid and accrued by the
vendor on those expense items, are included in the taxable receipts for the sale.
For taxable sales, section 1132(a)(1) of the Tax Law requires that tax on the price for a sale
be stated, charged, and separately shown on the sales slip, invoice, receipt, etc. given the customer.
There are no requirements in the law as to how or whether a vendor should reflect its expenses on
the sales slips, invoice, receipts, etc. given its customer. The fact that the vendor’s consumable
items are separately stated on the invoice presented to the customer is not determinative of whether
the items are considered to be resold or are an expense item. Also, the fact that the item, for
example $5.00 of masking tape, is shown on the invoice as costing $5.00 plus $0.40 sales tax
(assuming an 8% State and local tax rate), or as $5.40 (without acknowledging payment of the tax),
or as $6.00 (the vendor having marked up the item to cover its cost including the tax), has no effect

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Sales Tax
September 22, 2009

on the tax treatment of the transaction to the customer. The customer is not actually being charged
tax on the consumable items since the customer is not the purchaser, user, or consumer of the items;
the customer is reimbursing the vendor’s costs for the consumable items used in making the sale of
the taxable property or service purchased by the customer. Tax was properly due from and paid by
the repair shop on the expense items whether or not the repair is ultimately subject to tax. Even if
the receipt for the purchase of the repair service is ultimately not subject to tax (e.g., purchased by
an exempt organization), the vendor would still be required to pay sales tax on its purchase and use
of the consumables, and the costs for the consumables, including the tax, would be passed along and
borne by the customer.

DATED: September 22, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department policies
in effect as of the date the Opinion is issued or for the specific time period at
issue in the Opinion.