If my appliance repair customer pays only for an estimate and decides not to go ahead with the repair, do I have to charge sales tax on that estimate/service call fee?

Subject

Estimate Fee — Not A Taxable Charge If Customer Declines To Have Appliances Repaired

Plain-English summary

A sole proprietor running a major appliance (washers, freezers, stoves, etc.) repair business asked the Comptroller how sales tax applies to four common scenarios involving service calls, estimates, labor, and parts. The business charged customers in three possible pieces: (1) a service call fee covering travel time, mileage, and diagnosing the problem/estimating the repair cost; (2) an hourly labor charge for actually performing the repair; and (3) a charge for parts used.

The Comptroller's answer turns on whether a repair actually happens:

• Customer declines the repair (whether the technician came to the customer's home/office, or the customer brought the appliance into the shop): the only charge is the service call or estimating fee, and that fee is not taxable because no repair of tangible personal property occurred.
• Customer approves the repair: the entire charge -- service call, labor, and parts -- becomes taxable, whether the estimating fee is billed separately or folded into (dropped in favor of) the labor and parts charges.
• Built-in appliances that are part of real property (e.g., a dishwasher built into a kitchen cabinet) follow different rules: repairs to such appliances in residential property are taxed only on the parts (not the service call or labor), while repairs in nonresidential property (restaurants, hotels, etc.) are taxed on the full charge -- service call, labor, and parts.

What this means for you

Appliance repair businesses

If a customer pays only to find out what a repair would cost and then declines, don't charge sales tax on that fee -- it's a nontaxable estimate/service charge, not a taxable repair. But the moment the customer approves the work, tax applies to the whole bill (service call, labor, and parts), regardless of how the fee is structured or whether the estimating fee is dropped.

Businesses that also repair built-in appliances

Pay attention to whether the appliance is installed in residential or nonresistential real property. Residential built-in appliance repairs are taxed on parts only; nonresidential (commercial) built-in appliance repairs are taxed on the full charge, including service call and labor.

Accountants and tax professionals

This letter is fact-specific ("this opinion is based on the facts you submitted... other facts, though similar, may yield different results") and dates from 1996, so confirm current Comptroller guidance before relying on it for a client's exact scenario.

Common questions

Q: I charged a customer for a service call, and they decided not to repair their appliance. Do I owe sales tax on that charge?
A: No. Per this letter, since no repair occurred, the service call/estimating fee is not taxable.

Q: The customer agreed to the repair after I gave them an estimate. What's taxable now?
A: The total charge -- service call, labor, and parts -- becomes taxable once you repair the tangible personal property.

Q: Does it matter if I drop the estimating fee once the customer approves the repair and just charge for labor and parts?
A: No -- per Scenario Four in this letter, the labor and parts charges are still taxable to the customer even if the estimating fee itself is waived.

Q: What if the appliance is built into real property, like a built-in dishwasher?
A: It depends on the type of property. In residential property, tax applies only to parts (not service call or labor). In nonresidential property (restaurants, hotels, etc.), tax applies to the full charge -- service call, labor, and parts.

Citations and references

No specific statutes or administrative rules were cited in the body of this 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/9604L1402G12

Original ruling text

April 10, 1996

Dear ****:

Thank you for your letter concerning the taxability of a variety of
scenarios involving repairs and/or estimates.

Background: ** is a major appliance (washers, freezers, stoves,
etc.) repair company of which you are the sole proprietor and the only
serviceman. The charges to the customer are divided into three categories:

1) Service call--set charge to pay for time and mileage to the customer
as well as time to trouble-shoot the problem and estimate the total repair
cost.

2) Labor charge based on $xx.xx per hour--time spent actually repairing
the appliance.

3) Parts--parts used to repair the appliance.

Scenario One: At customer's request you travel to customer's home/office
and examine the appliance. When customer is informed of total estimated
repair cost, customer decides not to repair the appliance. The only charge
is the service call.

Response: Since there is no repair, the service call for the estimate is
not taxable.

Scenario Two: At customer's request you travel to customer's home/office
and examine the appliance and give the customer an estimate. Customer
agrees to have the appliance fixed. Customer is charged for the service
call, labor, and parts (if any were used).

Response: The total charges for the service call, labor and parts are
taxable to the customer if you repair an appliance that is tangible
personal property.

Scenario Three: Customer brings the appliance into your shop. The
appliance is examined and the repair cost is estimated and the customer
is informed. Customer decides not to repair the appliance. An estimating
fee for examining the appliance is the only charge.

Response: The estimating fee is not taxable because the appliance has
not been repaired.

Scenario Four: Customer brings the appliance into your shop. The appliance
is examined, the repair cost is estimated and the customer is informed.
Customer gives the okay to repair. The estimating fee is dropped and the
customer is charged for labor and parts (if any were used).

Response: The total charges for the labor and parts are taxable to the
customer.

Please note that some appliances become improvements to real property if
the appliances are built into a cabinet that is realty. For example, a
built-in dishwasher in a kitchen cabinet top is an improvement to
realty. If you repair built-in appliances in residential property (i.e.,
house, apartment, etc.), collect sales tax on the charge for parts, but not on
the charges for the service call and labor. On the other hand, if you happen
to repair a built-in appliance in nonresidential property (i.e., restaurant,
hotel, etc.), tax is collected on the total charges (service call, labor, and
parts).

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line
is 512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9604095L