When a Texas vendor rebuilds a customer's motor-vehicle part and returns that same part, is the full charge taxable?

Plain-English summary

Texas treated rebuilding a customer's transmission, engine, alternator, or other bus part and returning that same part to that same customer as motor-vehicle repair. The labor charge was not taxable.

Materials depended on the contract format. Under a separated contract, the vendor collected tax on the agreed materials price, which could not be less than the repairer's cost. Under a lump-sum contract, the vendor collected no tax from the customer on the lump-sum charge and instead paid tax to its materials suppliers.

The result changed when the vendor sold a rebuilt part to someone other than the person who brought it in, or supplied a rebuilt part different from the one the customer delivered. The Comptroller treated that as manufacturing and selling a part, making the total price—including parts and labor—taxable.

What this means for you

For this 1991 letter, the dividing line was whether the customer received the same part back. Repair shops and fleet operators should document the identity of the part delivered and returned, as well as whether the contract separately states materials and labor.

Common questions

Was labor taxable when the same part was rebuilt and returned? No. The letter called that motor-vehicle repair and said no tax was due on the labor.

What was taxed under a separated repair contract? The agreed contract price for materials, which could not be less than the repairer's cost.

What happened under a lump-sum repair contract? The vendor collected no tax on the lump-sum customer charge but paid tax to its materials suppliers.

When was the entire rebuilt-part price taxable? When the vendor sold to someone other than the person who brought the part in, or supplied a different rebuilt part instead of returning the customer's same part.

Citations and references

The letter did not cite a numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1086C13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 12, 1991

Dear *****:

Thank you for your recent letter. As I understand it, you wanted a
taxability opinion regarding the following situation: ** will take
transmissions, engines, alternators and various other bus parts to Texas
vendors, who will rebuild the parts and return them to **.

Rebuilding motor vehicle parts and returning the same parts to the same
person who brought them in constitutes repair of a motor vehicle. There is no
tax due on the labor toperform this service. If a vendor operates under a
separated contract, he or she will collect tax only on the agreed contract
price for materials (which may not be less than the repairman's cost). If a
vendor operates under a lump-sum contract, he or she will collect no tax on the
lump-sum charge, but instead will pay tax to his or her materials suppliers.

The language in the tax directory you attached suggests correctly the
following distinctions. Tax is due on the total sales price (including parts
and labor): If a vendor sells rebuilt motor vehicle parts to a person other
than the person who brought the parts in; or if a vendor sells to a customer
rebuilt parts other than the same parts the customer brought in. In these
instances, the vendor is acting as a parts manufacturer, and not a repairman.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further questions, feel
free to write or call me at 1-800-531-5441, ext. 3-3889.

Sincerely
John Christian
Tax Administration