Operating an auto repair shop involves more than just fixing vehicles; understanding and managing sales tax is crucial for compliance and financial health. This guide provides a detailed overview of sales tax regulations for auto repair shops, ensuring you’re well-informed about taxable services, exempt purchases, and proper procedures.
Understanding Sales Tax on Auto Repair Services
If you operate an auto repair or body shop, registration with the Tax Department is mandatory for collecting and remitting sales tax. This applies to a wide range of vehicles, including cars, trucks, RVs, motorcycles, and snowmobiles. Beyond sales tax, you might also be responsible for the New York State Waste Tire Management Fee.
Generally, most services offered by auto repair shops are subject to sales tax. This means you must collect sales tax on the total charge encompassing both parts and labor for repair services. Additionally, sales tax applies to any parts or supplies, like windshield wipers or motor oil, sold directly to customers. For precise sales tax rates, refer to official resources such as the Sales Tax Rates, Additional Sales Taxes, and Fees (TB-ST-825) bulletin or the Tax Department’s website’s Jurisdiction/Rate Lookup by Address tool.
Towing and Vehicle Transportation: What’s Taxable?
Towing a disabled vehicle is considered a taxable service. This includes towing to your shop, another repair facility, or any location as per the vehicle owner’s instructions.
However, transporting vehicles that are not broken down or disabled is not taxable. Examples include transporting antique cars to shows, repossessed vehicles, or moving vehicles between locations for reasons other than repair.
Storage Charges: Are They Taxable?
Yes, charges for vehicle storage are taxable. For instance, if a repaired vehicle remains at your shop beyond an agreed-upon pickup date, the storage fees are subject to sales tax.
New York State Inspections: Tax Implications
The fee for a New York State motor vehicle inspection itself is not taxable. However, it’s important to note that any repair work needed for a vehicle to pass inspection is taxable, covering both parts and labor.
Sales Tax on Warranty Work and Service Contracts
When dealing with repairs covered by a service contract or warranty, the billing process involves the warranty company. Your charges to the warranty company for work covered under warranty are not taxable, provided the warranty company gives you Form ST-120, Resale Certificate. This exemption is valid only if the warranty company is a registered vendor in New York State and provides a properly completed resale certificate. Any charges billed directly to the customer for repairs not covered by the warranty remain taxable.
Insurance Claims and Auto Repairs: Taxable Transactions
Repair work covered by insurance follows a similar tax rule. When you bill the insurance company for repairs, both materials and labor are taxable.
Example: Following an accident, a customer brings their vehicle to your auto repair shop. The assessment indicates the need to replace the fender, front quarter panel, and passenger-side door, along with painting the repaired sections. The complete bill submitted to the insurance company, encompassing parts and labor, is taxable. For more details, refer to Tax Bulletin [Taxable Receipt (TB-ST-860)](/pubs_and_bulls/tg_bulletins/st/taxable_receipt.htm).*
Tax-Exempt Purchases for Your Auto Repair Shop
Understanding what your auto repair shop can purchase without paying sales tax is crucial for managing costs and compliance.
Parts for Resale: Utilizing Form ST-120
You can purchase parts that will be transferred to customers as part of a repair job without paying sales tax upfront. To do so, provide your supplier with Form ST-120, Resale Certificate.
Examples of parts eligible for tax-exempt purchase include:
| – Brake pads and rotors | – Headlights and brake lights |
| – Shocks and struts | – Starters and alternators |
| – Tires | – Windshields |
| – Filters | – Rear-view mirrors |
| – Fan belts | – Doors |
| – Electronic sensors | – Fenders |
Tools and Equipment: General Taxability and Specific Exemptions
Generally, the purchase, lease, or rental of tools and equipment for your auto repair shop is taxable. These items are used for providing repair services but are not transferred to the customer.
Taxable tools and equipment examples are:
| – Wrenches and sockets | – Lifts |
| – Screwdrivers and nut drivers | – Wheel balancers |
| – Pliers | – Engine analyzers |
| – Impact tools | – Pipe benders |
| – Clamps | – Alignment equipment |
| – Hammers | – Air compressors |
| – Torches | – Welding equipment |
| – Jumper cables | – Paint booths |
However, there’s a specific exemption for enhanced emissions inspections equipment. Purchases of this equipment can be tax-exempt if:
- The New York Department of Environmental Conservation certifies the equipment for enhanced emissions inspection and maintenance programs as per the Federal Clean Air Act and the New York Clean Air Compliance Act.
- Your shop is an official inspection station, licensed by the Commissioner of Motor Vehicles, and authorized to conduct these enhanced emission inspections.
To claim this exemption, give your supplier Form ST-121, Exempt Use Certificate, at the time of purchase.
Supplies: Taxable vs. Exempt Based on Transfer
Supplies that are physically transferred to the customer as part of a repair or maintenance service can be purchased tax-exempt. Use Form ST-120, Resale Certificate, for these purchases.
Examples of tax-exempt supplies include:
| – Brake fluid | – Paint |
| – Transmission fluid | – Automotive body fillers |
| – Antifreeze | – Flux |
| – Bearing grease | – Sheet metal |
| – Motor oil | – Thinners and solvents |
On the other hand, supplies used within your shop that are not transferred to customers are taxable.
Examples of taxable supplies include:
| – Shop towels | – Drop cloths |
| – Cleaners | – Face masks |
| – Paper floor mats | – Masking tape |
| – Office supplies | – Polishing and buffing pads |
| – Sandpaper | |
For further details, consult TSB-M-81(8)S, Taxable Status of Supplies used by Auto Body Repair Shops.
Conclusion: Ensuring Sales Tax Compliance for Auto Repair Businesses
Navigating sales tax for auto repair shops requires careful attention to detail. Understanding the distinction between taxable services and exempt purchases, and correctly utilizing forms like ST-120 and ST-121, is essential for compliance and accurate financial management. Staying informed about New York State tax regulations and seeking professional advice when needed will help your auto repair business operate smoothly and avoid potential tax-related issues.
References & Useful Information:
Tax Law: Section 1105(c)(3)
Regulations: Section 527.5
Memorandum:TSB-M-81(8)S, Taxable Status of Supplies used by Auto Body Repair Shops
Bulletins:
How to Register for New York State Sales Tax (TB-ST-360)
Sales Tax Rates, Additional Sales Taxes, and Fees (TB-ST-825)
Taxable Receipt (TB-ST-860)
