Does a business that recycles and resells used air filters for large trucks owe sales tax on those sales -- and how does that differ from a motor vehicle repairman who cleans a filter and puts it back in the same truck?

Plain-English summary

A business that recycles and sells air filters for large trucks used in the transportation industry asked whether it needs to collect sales tax on those sales -- especially since a competitor doesn't, relying on a 1984 STAR document (8412L0632A14) written to a motor vehicle repairman. The Comptroller confirmed the recycler DOES owe sales tax on its filter sales (unless it gets a valid resale or exemption certificate from its customer), and explained why the 1984 letter doesn't help the recycler's competitor. That older letter addressed a different situation: a MOTOR VEHICLE REPAIRMAN who cleans a filter and returns it to the SAME motor vehicle. Under that rule, cleaning a filter used in equipment is taxable, but cleaning a filter used in a motor vehicle is not -- unless the customer can't document (via exemption certificate and usage records) that the filter is actually used in a motor vehicle rather than equipment. Critically, though, a repairman's cleaning-and-returning-to-the-same-vehicle service is a nontaxable MOTOR VEHICLE REPAIR labor charge (with the repairman still owing tax on his own cleaning supplies) -- a completely different tax category from a recycler who buys USED filters from various sources, cleans/processes them, and sells them to a DIFFERENT customer. That recycler isn't repairing anyone's vehicle; it's selling parts (tangible personal property), so it must collect sales tax on those sales just like any other seller of parts, and the 1984 repairman-specific letter is not applicable to its business.

What this means for you

Recyclers and resellers of used auto/truck parts

Selling recycled parts -- even parts like air filters that started life in someone else's vehicle -- is a taxable sale of tangible personal property. You must collect sales tax unless your customer gives you a valid resale or exemption certificate. Don't rely on rules written for motor vehicle REPAIRMEN servicing the SAME vehicle; that's a different tax category from selling parts to a new customer.

Motor vehicle repair shops cleaning and reinstalling filters on the same vehicle

Removing a filter from a customer's vehicle, cleaning it, and putting it back on that SAME vehicle remains a nontaxable repair/maintenance service -- but you still owe tax yourself on the supplies used to clean it, and you need the customer's exemption certificate (plus their own usage records) if the filter could be used in either equipment or a motor vehicle and you want to treat the cleaning as nontaxable.

Accountants and tax professionals

This letter is a clean illustration of how the SAME physical activity (cleaning/processing a filter) gets different tax treatment depending on the seller's role: repairman servicing the customer's own vehicle (nontaxable labor) versus recycler/reseller selling a processed part to a new customer (taxable sale of parts) -- don't let an old repairman-specific letter get misapplied to a parts-recycling business.

Common questions

Q: Is selling recycled/reprocessed air filters taxable?
A: Yes, per this letter -- the seller must collect sales tax unless it receives a valid resale or exemption certificate.

Q: Does the 1984 rule that "cleaning a motor-vehicle filter isn't taxable" apply to a filter recycler?
A: No, per this letter -- that rule is specific to a motor vehicle repairman cleaning and returning a filter to the SAME vehicle, not to a recycler selling processed filters to a new customer.

Q: Is a repair shop's filter-cleaning-and-reinstalling service on a customer's own vehicle taxable?
A: No, per this letter -- that's a nontaxable motor vehicle repair service, though the shop still owes tax on the cleaning supplies it uses.

Citations and references

Statutes and rules:

• STAR document 8412L0632A14 (1984) (motor vehicle repairman filter-cleaning rules, distinguished here)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9703314L

Original ruling text

March 18, 1997

Dear **:

Thank you for your recent letter. You asked if tax is due on your sales of
recycled air filters. You stated that you recycle and sell air filters for
large trucks used in the transportation industry.

Sales tax is due on the sale of recycled air filters. You are responsible for
collecting the tax unless you receive a valid resale or exemption certificate.

You also stated that a competitor does not collect sales tax on sales of
recycled air filters. Your competitor relies on microfiche document
8412L0632A14 for not collecting the tax. This document states in pertinent
part:

Sales tax is due on the parts and materials used in repairing motor vehicle
engines and transmissions. You may pay sales tax on the parts and materials if
you bill a lump-sum amount for the repairs. If you bill separated amounts for
labor, parts and materials, you must collect sales tax from the customer on the
charges for parts and materials.

Cleaning air filters used in equipment is taxable. Cleaning air filters used
in motor vehicles is not taxable. You are required to collect sales tax on the
charge for cleaning air filters which can be used in equipment and motor
vehicles unless the customer issues an exemption certificate stating that the
filters are for use in motor vehicles. The customer has the burden of keeping
records on the use of the filters. Customers who do not maintain these records
should not claim the exemption. Customers may submit samples of their methods
to document use of the filters in equipment and motor vehicles.

Payment of sales tax on the supplies used in cleaning air filters will not
relieve you of your responsibility to collect the sales tax.

This 1984 letter was written to a motor vehicle repairman. A motor vehicle
repairman has different tax collecting responsibilities than a seller of
tangible personal property and therefore is not applicable to the situation you
presented.

The labor to repair a motor vehicle is not taxable. A repairman taking an air
filter from a motor vehicle, cleaning it, and returning the filter to the same
motor vehicle is not responsible for collecting tax on the maintenance service
to the motor vehicle.

However, a recycler that purchases used air filters, performs cleaning and
processing on the filter, and sells the filter to another is not a motor
vehicle repairman. The filter recycler is a seller of parts used in a motor
vehicle.

If you remove a filter from a motor vehicle, clean it and return it to the same
vehicle, the filter cleaning (repair of the motor vehicle) service is not
taxable. Tax is due on the materials and supplies used to perform the service.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,
Lindey Osborne
Sales Tax Policy Division