When was a dealership's environmental fee on a Texas motor-vehicle repair order taxable under Letter Ruling 9205L1167G09?

Plain-English summary

A dealership's environmental fee followed the tax treatment of the charge used to calculate it. The letter addressed fees intended to recover compliance costs involving hazardous chemicals, used oil, and similar environmental obligations.

Motor-vehicle repair, maintenance, or restoration labor was nontaxable under the letter. An environmental fee calculated as a percentage of that labor charge was therefore nontaxable. A fee calculated from materials was taxable, and a fee calculated from the total of materials and labor was taxable.

The result did not change merely because the environmental fee was separately stated. The letter treated the fee as a seller expense included in the sales price of a taxable item when the underlying job or charge was taxable.

What this means for you

Under this 1992 letter, the calculation base mattered more than the fee label or separate line item. A dealership needed to know whether the environmental charge was tied only to nontaxable labor, to taxable materials, or to the combined invoice total.

Common questions

Was every environmental fee taxable? No. A fee based only on nontaxable motor-vehicle repair labor was not taxable.

Was a fee based on materials taxable? Yes.

What if the fee was based on total materials and labor? The letter treated the entire fee as taxable.

Did separately stating the fee make it nontaxable? No. Separate statement did not control the result.

Citations and references

• Tex. Tax Code § 151.007(a)(2), as cited in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1167G09

Original ruling text

May 4, 1992

Dear **:

This is in response to your letter dated February 14, 1992, asking
about the tax consequence of an environmental charge.

You stated that dealerships make a separate charge on repair
orders to recapture the cost of compliance with state and federal
regulations such as OSHA'S Right-To-Know, the cost of storing and
transporting solvents and other hazardous chemicals, the cost of
storing and transporting used oil, etc.

The environmental fee, whether or not separately stated to the
customer, is taxable if the job itself is taxable. This is
because the "sales price" of a taxable item (meaning a taxable
good or service) includes "the materials used, labor or service
employed, interest, losses, or other expenses." [Tax Code Section
151.007 (a) (2)] The environmental fee you described simply
represents a potential cost or expense to the seller that is used
when calculating the charges for the services provided.

The labor charge to a customer to repair, maintain, or restore a
motor vehicle is not taxable. If the environmental fee is a
percentage of the nontaxable labor charge, the fee is not taxable.
If the fee is a percentage of materials, the fee is taxable. If
the fee is based on the total charge (materials and labor) the fee
is taxable.

This opinion is based on the facts that you presented. Different facts,
though similar, might lead to different answers. If you have any
questions, feel free to write or call me at 1-800-531-5441, extension
50330 or 512/463-4600934.

Sincerely,

Bettie Peterson
Tax Administration Division