If a motor vehicle repair shop charges one lump-sum price for an oil and filter change (with no separate charge for the oil and filter), does it owe sales tax on that charge to the customer?

Plain-English summary

A motor vehicle repair shop asked the Comptroller's Tax Policy Division about the taxability of oil changes. The letter explains that an oil change is a repair or maintenance service, and labor to repair or maintain a motor vehicle is not taxable — unlike the repair and maintenance of other types of tangible personal property (such as lawn mowers or bulldozers), where the total charge for materials and labor is taxable.

A motor vehicle repairman does not need a sales tax permit if operating as a lump-sum repairman. A lump-sum repairman pays tax on the materials (the oil and filter) when purchasing them, but does not collect tax from the customer on the lump-sum price charged for the job. The tax paid on materials is a cost the repairman should factor into setting the lump-sum price.

The letter then reviews the taxpayer's sample invoice: an $18.95 charge for an oil and oil filter change, a $0.50 charge for filter disposal, a $19.45 subtotal, $1.60 in sales tax collected (at 8.25%), for a $21.05 total. Because the $18.95 charge had no separately stated price for the oil and filter apart from the labor, it was a lump-sum price, meaning the shop was not a "seller" for that transaction and should not have collected the $1.60 in tax from the customer. As a lump-sum repairman, the shop is instead treated as the consumer of the oil and filter and must pay (or remit, if bought tax-free on resale) tax on those materials itself.

The separate $0.50 filter-disposal charge is also not taxable to the customer in this case, because it is tied to a lump-sum oil-change job where the shop is not a seller of materials. The letter notes that if the shop instead operated as a "separated repairman" and the disposal charge was connected to a separately stated materials charge (for example, a percentage of the materials charge), the disposal fee would be taxable.

The letter also addresses disposal of the used oil and filters themselves: that service is regulated under Chapter 26 of the Texas Water Code and is excluded from the definition of garbage or other solid waste, so the shop can give its waste hauler written notice that the removal service is not taxable.

Finally, because the $1.60 tax on the lump-sum charge was collected in error, the letter states the shop must either refund it to the customer or remit it to the state; to the extent the shop refunds the tax to customers, the state can refund the tax to the shop.

A note at the top of the letter flags that the cited Rule 3.359 has since been repealed, and points readers to Rule 3.290 for current motor vehicle repair issues.

What this means for you

Motor vehicle repair shops billing lump sum

If you charge one lump-sum price for an oil and filter change — with no separate line for the price of the oil and filter apart from labor — you are a lump-sum repairman. You pay tax on the oil and filter when you buy them, but you should not collect sales tax from the customer on the lump-sum labor/service charge itself. Doing so risks collecting tax in error.

Charges for filter or waste-oil disposal

A disposal fee billed together with a lump-sum oil-change job is not taxable to the customer under this letter. That treatment changes if you instead separately state your materials charge (a "separated repairman") and tie the disposal fee to that materials charge — in that scenario the letter says the disposal fee would be taxable. Separately, the actual hauling away of used oil, filters, antifreeze, and brake fluid is a regulated waste-removal service that the letter treats as non-taxable, and you can notify your hauler of that in writing.

If you already collected tax on lump-sum charges

The letter is explicit that tax collected on a lump-sum motor vehicle repair charge is tax collected in error, and it must be refunded to the customer or remitted to the state. Repairmen who mistakenly charged tax on lump-sum oil-change jobs should review the letter's guidance on correcting that error.

Common questions

Q: Is labor to change a motor vehicle's oil taxable?
A: No. The letter states labor to repair or maintain a motor vehicle is not taxable, in contrast to repair/maintenance labor for other types of tangible personal property (like lawn mowers or bulldozers), which is taxable.

Q: Do I need a sales tax permit if I'm a lump-sum motor vehicle repairman?
A: No. The letter states a sales tax permit is not required for a lump-sum repairman of motor vehicles, who pays tax on materials but does not collect tax from the customer on the lump-sum price.

Q: Is a separately billed filter-disposal charge taxable?
A: Not when it accompanies a lump-sum oil-change charge, according to this letter. It would be taxable if billed by a "separated repairman" and tied to a separately stated materials charge.

Q: What should I do if I collected sales tax on a lump-sum oil-change charge by mistake?
A: The letter says that tax was collected in error and must be refunded to the customer or remitted to the state.

Q: Does this letter still cite valid rules?
A: The letter itself carries an alert that Rule 3.359, which it discusses, has been repealed, and directs readers to Rule 3.290 for current motor vehicle repair issues.

Citations and references

• Rule 3.359 (cited in the letter's body regarding lump-sum vs. separated repairman responsibilities; the letter's own alert notes this rule has since been repealed — see Rule 3.290)
• Rule 3.290 (referenced in the letter's alert as the current rule for motor vehicle repair issues)
• Rule 3.356(a)(3)(A) (cited regarding waste removal services)
• Rule 3.325 (cited regarding refunds)
• Chapter 26 of the Texas Water Code (cited regarding regulation of disposal of used oil, used oil filters, used antifreeze, and used brake fluid)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9503L1336A04

Original ruling text

ALERT: The cited rule, Rule 3.359 has been repealed. See Rule 3.290 for issues relating to Motor Vehicle repairs.

March 2, 1995

Dear **:

Thank you for your letter concerning the taxability of oil changes on
motor vehicles.

An oil change is a repair or maintenance service. Labor to repair or
maintain a motor vehicle is not taxable. This is different than the
repair and maintenance of other types of tangible personal property
which is a taxable service. For example, the total charges (materials,
labor, etc.) to repair lawn mowers or bulldozers is taxable. A sales
tax permit is not required if you are a lump-sum repairman of motor
vehicles. A lump-sum motor vehicle repairman pays tax on the materials,
but does not collect tax from the customer on the lump-sum price. Of
course, the tax paid on materials is a cost to the repairman and should
be considered when the repairman determines his lump-sum price for the
service.

The sample invoice you sent has an $18.95 charge for an oil and oil
filter change. You also charge .50 cents for filter disposal. The
subtotal is $19.45 on which you collect $1.60 insales tax (8.25%). The
total is $21.05.

The charge to your customer ($18.95) is a lump-sum price because there
is no price for materials (oil and oil filter) that is separately stated
from a price for the labor to change the oil and oil filter. If this is
a motor vehicle oil change, the lump-sum price means you are not a seller
and should not collect tax ($1.60) on the lump-sum price to your customer.
You are considered the consumer of the materials used in the oil change
and should pay tax when purchasing the oil and oil filters or remit the
ax to the state if the oil and oil filters were originally purchased
tax-free with a resale certificate. Please review subsection (b)( 1-3)
of enclosed Rule 3.359 regarding the responsibilities of repairman
operating under lump-sum contracts.

The separate charge for filter disposal (.50 cents) is a cost of business
that you are passing on to your customer. The charge for filter disposal
is not taxable to your customer because you are not a seller of materials
when you have a lump-sum price for changing motor vehicle oil filters. If
you were a separated repairman (See subsection (c) of Rule 3.359) and the
charge for filter disposal was connected to a separately stated charge for
materials (such as a percentage of the materials charge), then it would be
taxable to a customer.

You probably pay someone to haul away used oil and used oil filters. The
disposal of used oil, used oil filters, used antifreeze, and used brake
fluid is subject to regulation because of Chapter 26 of the Texas Water
Code and is excluded from the definition of garbage or other solid waste.
See Rule 3.356(a)(3)(A) on waste removal services. For that reason, you
can give the service provider written notification that the service of
removing the used oil and oil filters is not taxable.

The tax collected from your customers on the lump-sum prices is tax
collected in error. You must either refund the tax to the customer or
remit it to the state. To the extent you can refund the tax to your
customers, the state can refund the tax to you. The enclosed Rule 3.325
has additional information on refunds.

This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.

You may call me toll free at 1-800-531-5411, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division

NOTE: Previous Accession Number 9503895L