Which vehicle services were taxable: inspections, insurance-purpose appraisals, other appraisals, breakdown coverage, or roadside repairs?

Plain-English summary

A mobile vehicle business offered inspections, appraisals, and “mechanical breakdown coverage.” The Comptroller said a separately stated vehicle-inspection charge was not taxable. An appraisal for insurance purposes was taxable whether paid by an insurance company or another customer, while a vehicle appraisal for another purpose was not taxable. The records needed to state each appraisal's purpose clearly.

Insurance premiums and extended motor-vehicle service-warranty charges were not taxable under the letter's alternatives. For roadside repairs, a lump-sum labor-and-parts charge was not collected from the customer, but the provider paid tax on its parts. If labor and parts were separately billed, the provider collected tax on the parts, could buy them for resale, and did not tax the repair labor.

What this means for you

Purpose and invoice structure mattered. An appraisal's insurance connection changed taxability, while repair billing determined whether the provider or customer bore tax on parts.

Common questions

Was a separately stated vehicle inspection taxable? No.

Was an appraisal for insurance purposes taxable? Yes.

Was an appraisal for another purpose taxable? No.

Was motor-vehicle repair labor taxable? No.

How were parts handled on a lump-sum repair? The provider paid tax to its supplier.

Citations and references

The letter did not cite a 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/9103L1094B07

Original ruling text

March 22, 1991

Dear **:

Thank you for your recent letter. As I understand it, your company provides
mobile on-site inspection and appraisal of motor vehicles. You also stated that
you provide "mechanical breakdown coverage" to some customers, for a fee. You
ask which of these services, if any, are taxable.

A separately stated charge for inspection of a motor vehicle is not taxable.
Your records should clearly indicate that the charge is for inspection.

As for appraisal, you must obtain a sales tax permit and collect tax if you
appraise motor vehicles for insurance, purposes. You must collect tax from an
insurance company that pays you to appraise a motor vehicle; and you must
collect tax from a person or company that pays you to appraise a motor vehicle
for insurance purposes.

Appraisal of a motor vehicle for purposes other than insurance is not taxable.
You should be sure to note clearly in your records the purpose of each
appraisal, in case you are audited.

I am not sure what you mean by "mechanical breakdown coverage". If you mean
that you are insuring your customers against breakdown for a premium, you do
not have to collect tax on the premium. If you mean you are offering an
extended motor vehicle service warranty, you do not have to collect tax on that
charge, either (but see below, regarding repairs).

If you mean you provide road repair service, then the following rules apply:

If you bill your customer one lump-sum charge for labor and parts, you do not
have to collect tax on the charge. You must pay tax on all the parts to your
suppliers.

If you bill your customer separately for labor and parts, you must collect tax
on the total charge for parts. You must obtain a sales tax permit to do this.
In this case, you may issue a resale certificate instead of paying tax to your
parts suppliers. The labor to repair a motor vehicle is not taxable.

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 1-800-252-5555. My direct extension is 3-3889.

Sincerely,

John Christian
Tax Administration