Which aircraft and automobile upholstery labor was taxable in Texas, and what was required for a refund?

Plain-English summary

An upholstery business mainly installed dealer-supplied material in automobiles and sought a refund of tax paid on labor.

Initial upholstery was part of manufacturing an aircraft, motor vehicle, or other tangible personal property and was taxable.

Reupholstery was repair, restoration, or remodeling. That labor was taxable for tangible personal property generally, except aircraft work and motor-vehicle repair or restoration. Motor-vehicle remodeling labor remained taxable.

Invoices had to document whether the job was initial upholstery or reupholstery and identify the property type. When a dealer resold the motor vehicle, the upholsterer could potentially accept a valid resale certificate for taxable labor.

If the upholsterer had collected tax from customers, it first had to refund each customer and obtain written acknowledgment before the Comptroller would refund the business.

What this means for you

Calling a charge “labor only” did not make it exempt. The work's role and the kind of property controlled, and refund rights depended on who had borne the tax.

Common questions

Was initial upholstery taxable? Yes.

Was aircraft reupholstery labor taxable? No.

Was motor-vehicle repair or restoration upholstery taxable? No.

Was motor-vehicle remodeling taxable? Yes.

Could a business recover tax it had collected from customers? Only after refunding those customers and documenting their acknowledgment.

Citations and references

The letter referred to enclosed seller-reporting and repair rules but did not identify their numbers in the text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9010L1054A10

Original ruling text

October 19, 1990

Dear ****:

Your request for refund of sales taxes paid by your client, ****, on
upholstery labor has been forwarded to me for review and response.

You stated that your client is in the business of upholstery of aircraft
and autos. During the periods involved, no aircraft contracts were performed.
With nominal exception all services performed consisted of work done for
dealers who supplied their own materials, thus requiring only labor in its
installation. You and your client feel because the revenues were from
labor only, sales tax is not due and reports were not required to be filed.

Our records indicate that your client holds an active sales tax permit. This
requires that he file reports whether he has taxable sales or not. Please
refer to the enclosed rule relating to sellers responsibilities and reporting
procedures.

Initial upholstery is a part of manufacturing an aircraft, motor vehicle,
or other tangible personal property. This labor is taxable. The labor to
reupholster an item is repair, restoration, or remodeling. This labor is
taxable for all tangible personal property except for aircraft and for the
repair, or restoration of a motor vehicle. The labor to remodel a motor
vehicle is taxable.

Invoices must be carefully documented showing whether the labor was for
initial upholstery or reupholstery and for which type of tangible personal
property, as discussed above. Because the work performed was for a dealer,
it may be possible for your client to accept a properly completed and valid
resale certificate in lieu of tax on any taxable labor if the dealer is
reselling the motor vehicle.

In order for this agency to approve your client's request for refund, it
is necessary to know whether the taxes remitted by your client to this
agency were collected from the customer or not. If the taxes were collected
from the customer, your client must refund the tax to each respective
customer before this agency will refund the tax to your client. Your client
must obtain documentation from each customer accepting and acknowledging
the credit or monies as a refund of sales tax paid in error.

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

You may also write to Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence