Did Texas tax an automobile extended-service policy, and who paid tax on parts used for covered repairs?

Plain-English summary

The automobile extended-service policy itself was not taxable under either tax discussed, but parts used in covered repairs were taxable.

The policy price was not part of the motor vehicle purchase price, so the historical four-percent motor vehicle tax did not apply. The policy sale also was not subject to Limited Sales or Use Tax.

For a repair invoice that separated parts from labor, the repairer collected sales tax on the parts charge. For a lump-sum invoice, the repairer paid sales tax when buying the parts or accrued and remitted use tax when taking parts from tax-free inventory, based on their purchase price.

What this means for you

The letter treated the service contract and the later repair inputs as separate transactions. Billing format determined whether tax was collected from the customer on a stated parts charge or borne by the repairer on parts used in a lump-sum repair.

Common questions

Q: Was the extended-service policy part of the vehicle purchase price?
A: No.

Q: Were covered repair parts exempt?
A: No.

Q: What happened under lump-sum billing?
A: The repairer paid sales tax on purchase or accrued use tax when taking parts from tax-free inventory.

Citations and references

• No statute or rule was cited in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/7905L2024B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller May 15, 1979

Dear ***:

Thank you for your letter of May 4, 1979, requesting information on the
taxa-
bility of extended service policies for automobiles.

As *** informed you by telephone, the price of an extended
service policy
is not considered part of the purchase price of a motor vehicle, and is
there-
fore not subject to the 4% Motor Vehicle Sales Tax.

The sale of the policy is not subject to Limited Sales or Use Tax.

However, the repair or replacement parts used in the repair of the
vehicle under
the extended service policy are subject to Limited Sales and Use Tax.
Under
a repair billing which separates parts from labor, the repairman would
collect
sales tax on the charge for parts.

Under a lump-sum repair billing which does not separate parts from labor,
the
repairman would be responsible for paying the sales tax on the parts at
the
time of purchase or accruing and remitting the use tax on the parts when
removed
from a tax-free inventory. The use tax would be due based upon the
purchase price
of the parts.

If you have any further questions concerning the Motor Vehicles Sales Tax
aspects
of this matter, you may write to me at the Motor vehicle Sales Tax
Division.
Questions regarding the Limited Sales Tax should be directed to the Sales
Tax
Division. You may also contact either division by calling toll free
1-800-252-
5555.

Sincerely,
Patricia Brockway
Motor Vehicles Sales Tax Division