Does a car-wash service that cleans a dealer's new, unsold vehicles have to charge sales tax?

Plain-English summary

Thomas S. Murray is about to start a car-wash business that will clean only new, unregistered automobiles and trucks at a car dealer's premises. He asked whether his service is exempt if the dealer gives him a Resale Certificate (Form ST-120).

The Department held the service is not taxable when covered by a resale certificate.

• Car washing is normally taxable. Maintaining, servicing, or repairing tangible personal property is taxed under § 1105(c)(3), and the regulations specifically say the charge for washing an automobile is taxable (20 NYCRR 527.5(a)(3), Example 5).
• But not when the property is held for sale. The same regulation provides that maintaining/servicing/repairing is not taxable if the property is held for sale in the regular course of business (20 NYCRR 527.5(b)(2)). A dealer's new, unregistered cars are inventory held for sale.
• So a resale certificate exempts the charge. Murray need not collect tax from the dealer if the dealer furnishes a properly completed Resale Certificate. The certificate must have all required entries filled in by the purchaser and be received within 90 days of the service (§ 1132); once it is, the burden of proving the receipt isn't taxable shifts to the customer. Murray may accept a blanket resale certificate for repeated purchases of the same kind of service (20 NYCRR 532.4).
• Murray still pays tax on his own supplies. He must pay sales tax on the machinery, tools, and supplies he buys to perform the service — except property actually transferred to the customer (see TSB-M-81(8)S on auto-body-shop supplies).

What this means for you

Servicing someone's inventory can be a resale service, not a taxable one. Even a normally taxable service like washing a car isn't taxed when it's performed on goods the customer holds for sale. The dealer's new cars are inventory, so cleaning them is part of getting them ready to sell.

The resale certificate is what protects you — get it right and get it fast. Collect a fully completed Form ST-120 within 90 days of the job. Once you have a valid certificate, the burden of showing the sale isn't taxable moves to your customer. For a recurring relationship, a blanket certificate covers ongoing work.

Your own supplies are still taxable. Buying a resale certificate from your customer doesn't exempt the soaps, tools, and equipment you consume to do the work — you pay tax on those, except anything you actually hand over to the customer.

Common questions

Q: I wash new cars for a dealer. Do I charge sales tax?
A: Not if the dealer gives you a valid resale certificate. The cars are inventory held for sale, so the service falls within the resale exception even though car washing is normally taxable.

Q: What do I need from the dealer?
A: A properly completed Resale Certificate (Form ST-120), received within 90 days of the service. A blanket certificate can cover repeated jobs of the same kind.

Q: Do I owe tax on my cleaning supplies and equipment?
A: Yes — you pay tax on the supplies, tools, and equipment you use up performing the service, except anything actually transferred to the customer.

Citations and references

Statutes and regulations:

• Tax Law § 1105(c)(3) — taxes maintaining, servicing, or repairing property not held for sale in the regular course of business
• Tax Law § 1101(b)(5) — defines "sale" to include rendering a taxable service for consideration
• Tax Law § 1132 — resale certificate requirements and the 90-day rule
• 20 NYCRR 527.5(a)(3), (b)(2) — washing a car is taxable, but not if the property is held for sale
• 20 NYCRR 532.4 — resale certificates, including blanket certificates for repeated purchases

Guidance referenced:

• TSB-M-81(8)S — Taxable Status of Supplies Used by Auto Body Repair Shops

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_29s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(29)S
Sales Tax
July 17, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S860515A

On July 1, 1986, a Petition for Advisory Opinion was received from Thomas S. Murray, 123
Henry Avenue, Harrison, New York 10528.
The issue raised is whether the service of cleaning new cars and trucks, performed for a car
dealer by persons other than its own employees, is subject to sales tax.
Petitioner, who is about to commence operating a car wash, states it will be cleaning only
new, unregistered automobiles and trucks at the dealers premises. Petitioner inquires whether its
service would be exempt from sales tax, if the dealer provides a Resale Certificate (Form ST-120).
Section 1101(b)(5) of the Tax Law defines the term "sale" to include "the rendering of any
service, taxable under this article, for a consideration...".
Section 1105(c)(3) of the Tax Law imposes a tax on the services of maintaining, servicing
and repairing tangible personal property not held for sale in the regular course of business.
Sales and Use Tax Regulation Section 527.5 provides, in part, as follows:
"(a)(3) Maintaining, servicing and repairing are terms used to
cover all activities that relate to keeping tangible personal property in
a condition of fitness, efficiency, readiness or safety or restoring it to
such condition.... Example 5: The charge for washing an automobile
is taxable, whether the washing is performed manually or by a coin­
operated machine.

(b)(2) Maintaining, servicing or repairing tangible personal
property is not taxable if the property maintained, serviced or repaired
is held for sale in the regular course of business."
Accordingly, Petitioner is not responsible for the collection of sales tax from a motor vehicle
dealer purchasing Petitioner's services, if such dealer has supplied a Resale Certificate in proper
form.
To be valid, the Resale Certificate must have all required entries completed by the purchaser;
moreover, Petitioner must have received the document not later than 90 days after the rendition of
the service. (Tax Law 1132). Where such a certificate has been furnished to the vendor, the burden
of proving that the receipt is not taxable rests solely with the customer. Petitioner may accept a
blanket Resale Certificate from customers making multiple purchases of the same kind of service.
(20 NYCRR 532.4 [b][3], [d][4]).
RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-86(29)S
Sales Tax
July 17, 1986

Additionally, it should be noted that Petitioner must pay sales tax on its purchases of tangible
personal property (machinery, tools, supplies, etc.) used or consumed in the performance of its
services, except for property which is actually transferred to the customer. In this regard, Petitioner
may find it helpful to review Technical Services Bureau Memorandum Taxable Status of Supplies
Used by Auto Body Repair Shops, May 11, 1981, TSB-M-81(8)S.

DATED: July 17, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.