How did Texas tax lump-sum vehicle repairs, separated repairs, vehicle remodeling, and work on movable specialized equipment?

Plain-English summary

The letter drew several lines for a Texas paint and body shop:

• For a lump-sum motor-vehicle repair, the repairer was the consumer of equipment, supplies, materials, parts, and taxable labor and paid tax when buying them. The customer did not owe tax on the lump-sum charge. A shop doing only these repairs did not need a permit, although it remained responsible for unpaid tax on purchases.
• For a separated or cost-plus repair, the shop needed a permit and collected tax on the total contract price for materials and parts incorporated into the vehicle. It could buy those incorporated items for resale, while paying tax on equipment, supplies, consumables, information services, and other items used in the work.
• The entire charge to remodel a motor vehicle was taxable. Examples included customizing a van, converting an old bus into an entertainer's traveling bus, and installing a sunroof.
• The total charge to repair, remodel, maintain, or restore movable specialized equipment and some race cars was taxable. The letter's examples included motorized cranes and motorized oil-well servicing units such as workover rigs.

Applicable city, county, transit, or special-purpose-district taxes could also apply to a taxable transaction.

What this means for you

Under this 1991 letter, contract format mattered for vehicle repair, while vehicle remodeling and work on the identified non-motor-vehicle equipment were taxed in full. The shop's permit, resale-certificate, and purchase-tax duties followed that classification.

Common questions

Was a lump-sum motor-vehicle repair charge taxable to the customer? No. The repairer instead paid tax on its taxable inputs.

What was taxable under a separated repair contract? The total contract price for materials and parts incorporated into the vehicle.

Was vehicle remodeling fully taxable? Yes. The entire charge was taxable.

How were movable specialized equipment and some race cars treated? They were not treated as motor vehicles, and the total repair, remodeling, maintenance, or restoration charge was taxable.

Citations and references

• Comptroller Rule 3.286 (seller's and purchaser's responsibilities)
• Comptroller Rule 3.290 (automotive repair and maintenance shops)
• Comptroller Rule 3.292 (repair, remodeling, maintenance, and restoration of tangible personal property)
• Comptroller Rule 3.349 (movable specialized equipment)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9102L1077G09

Original ruling text

February 25, 1991

Dear **:

Thank you for your recent letter concerning your sales and use tax
responsibilities in operating a paint and body shop repair business.

A repair person who operates under a lump-sum contract to repair a motor
vehicle is the consumer of all tangible personal property, such as equipment,
supplies, materials, and parts, and of taxable labors. The repairperson owes
tax at the time these items are purchased. The lump-sum charge is not taxable
to the repair-person's customer. If only motor vehicle repairs under lump-sum
contracts are performed, no permit is required. However, the repair person is
responsible for paying taxes on all purchases even if the vendor does not
charge them. This is especially a problem when purchases are made from
out-of-state vendors who do not collect Texas taxes. A permit can be obtained
to provide an avenue to report and remit any taxes due, or the taxes can be
reported and remitted when due directly to the Comptroller's office if this
situation occurs infrequently.

There are other areas which should be considered.

A repair person may need to work on a separated or cost-plus basis because a
final price cannot be computed up front. In these situations, a permit is
required. The repair person must collect and remit taxes on the total contract
price for materials and parts that are incorporated into the motor vehicle.
These items may be purchased tax free by giving the vendor a properly completed
resale certificate. Tax is due at the time of purchase on all taxable items
used or consumed in doing the repair. Examples include equipment, supplies,
consumables, and information services (such as parts locator services).

The entire charge to remodel a motor vehicle is taxable. A permit is required.
The materials and parts that are incorporated into the motor vehicle may be
purchased tax free by issuing the supplier a properly completed resale
certificate. Tax is due at the time of purchase on all taxable items used or
consumed in doing the remodeling. Examples of remodeling would be customizing
a van to the customer's request, remaking an old bus into a traveling bus for
entertainers, or installing a sunroof in a sedan.

Moveable specialized equipment and some race cars are not motor vehicles. The
total charge to repair, remodel, maintain, or restore these items is taxable.
A permit is required. The materials and parts that are incorporated into these
items may be purchased tax free by issuing the supplier a properly completed
resale certificate. Tax is due at the time of purchase on all taxable items
used or consumed in the repair, remodeling, or maintenance of these items.
Examples of moveable specialized equipment are motorized cranes and motorized
oil well servicing units, such as workover rigs.

If the sales or purchase transaction is taxable, city, county, transit, or
special purpose district taxes may also apply.

For your reference, enclosed are Rule 3.286 on seller's and purchaser's
responsibilities; Rule 3.290 on automotive repair and maintenance shops; Rule
3.292 on repair, remodeling, maintenance and restoration of tangible personal
property; and Rule 3.349 on moveable specialized equipment.

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

You may call me toll free at 1-800-252-5555, ext. 34697. The regular number is
512/463-4697. You may also write to Tax Administration at the above address.

Sincerely,

Sandi Skaggs
Tax Administration Division