How did Texas distinguish nontaxable transmission-repair labor from a taxable sale of a rebuilt transmission?

Plain-English summary

Labor to repair a motor vehicle was not taxable. That included repairing the transmission while it remained part of the vehicle, repairing or rebuilding a transmission the customer brought into the shop, and removing a vehicle's transmission and replacing it with a rebuilt one as part of the vehicle repair.

Parts remained taxable. For a lump-sum repair, the shop paid tax on its materials and did not charge the customer tax. If the shop separately stated materials and labor, it collected tax on the materials and could buy those materials tax-free with a resale certificate.

A different rule applied when the shop did not repair the customer's transmission and simply sold a rebuilt transmission. The Comptroller said both the labor and materials making up that rebuilt unit were taxable.

Common questions

Was labor to repair a transmission in a vehicle taxable? No.

What if the customer brought only the transmission to the shop? Labor to repair or rebuild that customer's transmission was not taxable.

What if the shop sold a different rebuilt transmission? The labor and materials in the rebuilt transmission were taxable.

How were parts handled in a lump-sum vehicle repair? The shop paid tax on the materials and did not collect tax from the customer.

How were separately stated parts handled? The shop collected tax on the materials charge and could purchase those materials with a resale certificate.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0951D08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 21, 1989

Dear **:

Thank you for your letter concerning the sales tax responsibilities
of a vehicle repair shop.

The replacement of a defective or inoperative component or accessory
is a repair of a motor vehicle. Labor to repair motor vehicles is
not taxable under the sales tax law. Therefore, when you repair the
transmission in a car in your shop, the labor is not taxable. See
Rule 3.290(b)(2), which is enclosed.

However, the parts are still taxable. If you perform their repair
for a lump-sum price then you should pay tax on the materials and
not charge your customer tax. If you separate the charge for mate-
rials from labor, then you should collect tax on the materials
charge and you may purchase the materials tax free with a resale
certificate. See Rule 3.292(b)(1)(a) and (b)(2)(a), which is
enclosed.

If a customer brings a motor vehicle transmission into your shop
to be repaired or rebuilt the labor is not taxable. See Rule
3.290(d)(1).

When you do not repair the customer's transmission you just sell
them a rebuilt transmission, then you should charge tax on the
labor and materials for the rebuilt transmission. See Rule
3.290(c).

If a customer brings a motor vehicle into your shop, you take the
transmission out and replace it with a rebuilt transmission, then
you are repairing a motor vehicle and the labor is not taxable.
The parts are still taxable. See paragraph three above.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions, please contact Tax Correspondence. You
may call toll free 1-800-252-5555, or our regular number is
512/463-4600. My extension is 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence