Is a Texas motor vehicle painting/repair shop's charge for painting materials, consumables (masking tape, sandpaper, solvents, etc.), and supplies taxable, and can the shop buy them tax-free for resale?

Subject

Motor Vehicle — Painting — Materials/Consumables/Supplies Used

Plain-English summary

A taxpayer asked the Comptroller about the taxability of materials used to prepare motor vehicles for painting and the materials used to paint them (an auto body/paint shop scenario). The answer turns on the labor exclusion and on how the repair job is billed.

Repair labor is not taxable. Repair labor on motor vehicles is specifically excluded from the definition of "taxable services" by Tax Code Section 151.0101. But the remaining charges for tangible personal property furnished in the repair job -- the parts and materials -- are taxable sales.

How you bill the job controls who owes the tax.

• Separated invoice (labor stated separately from parts): the labor charge is exempt, and the parts/materials charge is a taxable sale to the customer. Sales Tax Rule 3.359(b).
• Lump-sum invoice (one combined charge): the whole charge is exempt as a charge for labor, but the repairman itself owes tax on its cost of the parts. Sales Tax Rule 3.359(b).

Consumable supplies are separately addressed. Rule 3.359(a)(2) defines "consumable supplies." Under Rule 3.359(c)(2), a motor vehicle repairman may issue a resale certificate in lieu of paying tax to its suppliers for consumable supplies as well as materials incorporated into the vehicle -- but must then collect sales tax from its customers on the charge for both the consumable supplies and the materials. Consumable supplies include, but are not limited to: solvents, masking tape, body fillers, sandpaper and disks, and waxes and polishes. They do not include electricity (utilities), office supplies, or tools.

Only separated-contract repairmen get the resale route. Only repairmen operating under separated contracts (labor billed apart from parts/materials) may purchase consumables or parts tax-free for resale. A repairman billing on a lump-sum basis owes tax on its own purchase price for all consumable supplies and parts used in the repair, per Sections (a)(5) and (b) of Rule 3.359.

A note attached to this letter flags that Rule 3.359 was later repealed and replaced by Rule 3.290 (also covering Motor Vehicles), but states that no tax outcomes discussed here changed between the two rules.

What this means for you

Auto body/paint shops billing labor and parts separately

You don't owe tax on your labor charge. You can buy the paint, parts, and consumable supplies (solvents, masking tape, body fillers, sandpaper/disks, waxes, polishes) tax-free from your suppliers using a resale certificate, then you must collect sales tax from your customer on the charge for those materials and consumable supplies.

Auto body/paint shops billing a single lump-sum price

Your whole charge to the customer is treated as exempt labor -- you don't collect tax from the customer. But you cannot buy your parts and consumable supplies tax-free; you owe sales tax yourself on what you paid your suppliers for them.

Shops trying to decide how to structure invoices

Whether you separate labor from parts/materials on the invoice determines who ultimately bears the sales tax (the customer, on a separated invoice, vs. you, the shop, on a lump-sum invoice) and whether you can use a resale certificate when buying consumable supplies and materials.

Common questions

Q: Is labor to paint or repair a motor vehicle taxable in Texas?
A: No. Repair labor on motor vehicles is excluded from the definition of "taxable services" by Tax Code Section 151.0101.

Q: What counts as "consumable supplies" for a motor vehicle repair shop?
A: Rule 3.359(a)(2) defines the term, and the letter lists examples: solvents, masking tape, body fillers, sandpaper and disks, and waxes and polishes. Electricity (utilities), office supplies, and tools are not included.

Q: Can a paint/body shop buy paint and consumable supplies tax-free with a resale certificate?
A: Only if it operates under a separated contract (labor billed separately from parts/materials). In that case, Rule 3.359(c)(2) lets it use a resale certificate for consumable supplies and materials incorporated into the vehicle, but it must then collect sales tax from the customer on those charges.

Q: What happens if the shop bills a single lump-sum price instead of separating labor and parts?
A: The whole charge to the customer is exempt as labor, but the shop owes sales tax on its own purchase price for the parts and consumable supplies used in the job -- it cannot buy them tax-free.

Q: Did the rule cited in this letter change later?
A: A note on the letter states Rule 3.359 was repealed in 1996 and replaced by Rule 3.290 (Motor Vehicles), but no tax outcomes discussed in the letter changed between the two rules.

Citations and references

Statutes and rules:

• Tax Code Section 151.0101 (repair labor on motor vehicles excluded from taxable services)
• Sales Tax Rule 3.359(b) (separated vs. lump-sum billing determines who owes tax)
• Sales Tax Rule 3.359(a)(2) (defines consumable supplies)
• Sales Tax Rule 3.359(c)(2) (resale certificate for consumable supplies/materials, tax collected from customer)
• Sales Tax Rule 3.359(a)(5) (lump-sum repairmen owe tax on purchase price of consumables and parts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9612060L

Original ruling text

ALERT: The rule (Rule 3.359) cited in this letter was repealed in 1996 but was replaced by Rule 3.290 relating to Motor Vehicles. No tax issues, as discussed in this document, changed between the 2 rules.

December 11 , 1996

Dear ***:

Thank you for your letter dated December 6, 1996, concerning the taxability of
materials used to prepare motor vehicles for painting and the materials used to
paint motor vehicles.

Repair labor on motor vehicles is specifically excluded from the definition of
"taxable services" by Tax Code Section 151.0101. The remaining charges for the
repair job represent taxable sales of tangible personal property.

If the repair invoice separately states the charge for repair labor from
component parts incorporated into the motor vehicle, then the labor charge is
exempt and the parts are taxable sales to the customer. If the repair charge
is a single lump sum charge then the whole charge is exempt as a charge for
labor but the repairman owes tax on its cost of the parts. Sales Tax Rule
3.359(b).

Rule 3.359(a)(2) defines consumable supplies. Section(c)(2) allows a repairman
of motor vehicles to issue a resale certificate in lieu of tax to suppliers for
consumable supplies as well as materials incorporated into the motor vehicle.
The repairman must then collect sales tax from customers on the charge for
consumable supplies as well as the charge for materials. Consumable supplies
includes, but is not limited to: solvents, masking tape, body fillers,
sandpaper and disks, waxes and polishes. Consumable supplies do not include
electricity (utilities), office supplies or tools.

Note - only repairmen that operate under separated contracts may purchase
consumables or parts tax free for resale. A lump-sum repairman owes tax on his
purchase price of all consumable supplies and parts used in the repair. See
Sections(a)(5) and (b) of Rule 3.359.

The Comptroller's office will be happy to provide a speaker before a group of
*** managers and owners. Send a written request with date(s) and
time(s) to Mr. Burrell Lankford, Supervisor, Sales and Motor Vehicle Tax Policy
Division, Comptroller of Public Accounts, Austin, Texas 78774. You may also
fax the written request to him at 512-475-0900.

This opinion is based on the facts presented and current law. Different facts
though similar, may result in different answers.

You may call or write me for additional information or if you have any
questions. The toll free number is 1-800-531-5441, and my extension is 50330.
The direct line is 512/475-0330. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,
Bettie Peterson
Tax Policy Division