Ezel / Tax Rulings / TX
TX 9403879L Sales and/or Use Tax (State,Local,MTA) 1994-03-18

Does Texas sales tax apply to motor vehicle repairs or replacement vehicles paid for with insurance claim settlement money?

Short answer: Yes for parts and for a replacement vehicle, no for labor. There is no special sales tax exemption for motor vehicle repairs or replacements paid via an insurance claim settlement or salvage title process. Motor vehicle sales tax applies to any replacement vehicle bought with insurance proceeds, and sales tax applies to the parts used in a repair regardless of the circumstances — but labor to repair a motor vehicle is not taxable. Insurers also have no exemption for repair claim payments, so there are no registration forms or filing instructions for insurers to obtain tax-exempt status.

Apply this to your situation

This page answers the general question as of 1994. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1994
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Subject

Motor Vehicle — Repair/Replacement Due To Insurance Claim Settlement Or Salvage Title Process

Source

Plain-English Summary

A taxpayer asked the Comptroller two questions about motor vehicles that are repaired or replaced after an insurance claim settlement or through the salvage title process. First, what sales tax rules apply to that repair or replacement? Second, how can insurers get tax-exempt status for the claim payments they make for repairs?

The Comptroller's answer to the first question: there is no special sales tax provision for motor vehicle repair or replacement tied to an insurance claim settlement or salvage title process. Ordinary sales tax rules apply instead. Specifically:

  • If the insurance proceeds are used to buy a replacement vehicle, motor vehicle sales tax applies to that purchase just as it would to any other vehicle purchase.
  • If the vehicle is repaired, sales tax applies to the parts used in the repair "regardless of the circumstances" — meaning it doesn't matter that an insurance settlement is paying for them.
  • Labor to repair a motor vehicle is not taxable.

The ruling cites Secs. 151.060 and 151.0101, Tex. Tax Code as the basis for this answer.

On the second question, the Comptroller stated that there is no exemption for an insurance company paying for repairs to a motor vehicle. Because no such exemption exists, there are no registration forms or filing instructions for insurers to become tax-exempt on these payments — the request itself doesn't apply since there's nothing to register for.

What This Means For You

If you're a body shop or repair facility billing an insurance claim: Charge sales tax on the parts you use in the repair, the same as you would on any other repair job. Do not treat the job as tax-exempt just because an insurance company (rather than the vehicle owner directly) is paying the bill. Your labor charges remain non-taxable.

If you're a vehicle owner replacing a totaled or salvage-titled vehicle with insurance proceeds: Expect to pay motor vehicle sales tax on the replacement vehicle purchase, just as you would with any other vehicle purchase — the source of your down payment or purchase funds (insurance proceeds) doesn't change that.

If you're an insurance company: There is no mechanism to obtain tax-exempt status for the repair claim payments you make on behalf of policyholders. Don't look for special registration forms or filing procedures for this purpose — none exist because no exemption applies.

Q&A

Q: Is sales tax owed on parts used to repair a car after an insurance settlement?
A: Yes. Sales tax applies to the parts used to repair motor vehicles regardless of the circumstances, including when an insurance claim settlement is paying for the repair.

Q: Is labor to repair a motor vehicle taxable in Texas?
A: No. The ruling states labor to repair motor vehicles is not taxable.

Q: Can an insurance company apply for tax-exempt status on the claim payments it makes for vehicle repairs?
A: No. There is no exemption for an insurance company paying for repairs to a motor vehicle, so there are no registration forms or filing instructions for this purpose.

Citations

  • Tex. Tax Code § 151.060
  • Tex. Tax Code § 151.0101

Original ruling text

March 18, 1994

Dear **:

Recently, you inquired about sales tax requirements in Texas regarding
settlement of motor vehicle claims. You asked the following questions:

  1. What are the sales tax regulations which apply to motor vehicle
    repair/replacement due to claim settlement or salvage title process in your
    state?

Answer: There are no provisions in the sales tax act which apply specifically
to the repair/replacement of motor vehicles due to claim settlement or salvage
title process. The motor vehicle sales tax applies to any replacement vehicle
purchased with insurance proceeds. The sales tax applies to the sales of parts
used to repair motor vehicles regardless of the circumstances. Labor to repair
motor vehicles is not taxable. See Secs. 151.060 and 151.0101, Tex. Tax Code,
copies enclosed.

  1. What is the procedure for insurers to obtain tax exempt status for claim
    payments for repairs? Please provide any necessary registration forms and
    filing instructions.

Answer: Because there is no exemption for an insurance company paying for
repairs to a motor vehicle, there are no registration forms or filing
instructions.

I hope this satisfactorily answers your questions. Should you require any
additional information, please contact Wade Anderson, Assistant Director of Tax
Administration, 111 East 17th Street, Austin, Texas 78774, or call at
1-800-531-5441, extension 3-4004.

Sincerely,

Glen D. Hunt, Director
Tax Administration

cc: Wade Anderson

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