Navigating the world of auto repairs can be complex, and understanding the associated costs is crucial for both vehicle owners and repair businesses. A common question that arises is: Does Texas charge tax on auto repair labor? This article will provide a comprehensive breakdown of Texas sales tax regulations concerning auto repair services, ensuring you’re well-informed and compliant.
Understanding Texas Sales Tax on Auto Repairs
In Texas, the rules regarding sales tax on auto repairs are specific and depend on various factors. To accurately understand these rules, it’s essential to differentiate between labor and parts, and how different invoicing methods affect tax obligations.
Key Definitions for Texas Auto Repair Sales Tax
Before diving into the specifics of labor and parts, let’s define some key terms according to Texas tax law:
Motor Vehicle: This broadly includes vehicles designed for transporting people or property on public roads. Examples of motor vehicles include:
- Automobiles
- Buses
- Vans
- Motor Homes
- “Street legal” Motorcycles
- Trucks and Truck Tractors
- Truck Cabs and Chassis
- Semi-trailers
- Trailers
- Travel Trailers
However, the definition specifically excludes certain types of vehicles and equipment:
- Devices moved only by human power (like bicycles)
- Devices used exclusively on stationary rails or tracks (like trains)
- Road-building machines
- Mobile offices
- Vehicles with salvage vehicle titles
- Abandoned or nonrepairable vehicles
- Vehicles declared a total loss by insurance companies
- Oilfield portable units
Motor Vehicle Repairperson: This refers to anyone skilled in repairing, remodeling, and maintaining motor vehicles. If you are involved in restoring, repairing, or replacing components of a vehicle that are not working correctly, you are considered a motor vehicle repairperson. Common job duties include:
- Repair: Fixing a vehicle that is broken, damaged, or malfunctioning to restore it to good working condition.
- Remodel: Modifying the style, shape, or form of a vehicle for someone else.
- Maintenance: Performing work on a functioning vehicle to keep it running safely and efficiently, preventing breakdowns and deterioration.
Texas Sales Tax: Labor vs. Parts
The fundamental rule in Texas is that labor charges for motor vehicle repairs are not subject to sales tax. However, parts used in these repairs are taxable. This distinction is critical to understanding your sales tax responsibilities.
For instance, if you pay for labor to replace a tire, battery, muffler, or shock absorber, that labor cost itself is not taxable in Texas. The focus of sales tax in auto repair is primarily on the tangible personal property—the parts—used in the repair process.
Invoicing and Sales Tax: Lump-Sum vs. Separated
The way a repairperson invoices their customers significantly impacts how sales tax is handled. Texas recognizes two main types of invoices in auto repair: lump-sum and separated.
Lump-Sum Invoices: Tax Responsibility
A lump-sum invoice is when a repairperson charges a single, total price for both parts and labor, without itemizing them separately. In this scenario, the repairperson does not collect sales tax from the customer on the total amount. Instead, the repairperson is responsible for paying sales tax on the parts when they purchase them from their suppliers.
Example of a Lump-Sum Invoice:
Imagine a customer gets an oil change at a shop that uses lump-sum invoicing. The total charge is $69.95, covering both the labor and the oil and filter. The repair shop, in this case, would have already paid sales tax when they bought the oil and filters from their supplier. They do not collect any additional sales tax from the customer on the $69.95 charge.
Under a lump-sum contract, even if the repair is for a customer who is otherwise exempt from sales tax (like a government entity), the repairperson still pays sales tax on the materials.
If a repairperson mistakenly charges and collects sales tax on a lump-sum invoice (covering both parts and labor), they must still pay sales tax to their supplier for the parts and also remit the incorrectly collected sales tax to the state. To correct this, the repairperson can refund the incorrectly collected tax to the customer and then amend their sales tax return to receive a credit or refund.
Consumable Supplies in Lump-Sum Invoices:
When using lump-sum invoices, consumable supplies used during repairs are taxable to the repairperson. Consumable supplies are items that are used up in the process of repair and are not reusable for their original purpose by the repair shop. These include items like shop rags, solvents, masking tape, body fillers, sandpaper, waxes, and polishes. Tools, equipment, electricity, and office supplies are not considered consumable supplies.
Separated Invoices: Tax Collection
In contrast to lump-sum invoicing, a separated invoice itemizes the charges for parts and labor separately. When using a separated invoice, the repairperson must collect sales tax from the customer specifically on the charge for parts. The labor charge remains non-taxable.
In this situation, the repairperson can provide a resale certificate to their parts supplier when purchasing parts. This certificate allows them to buy the parts without paying sales tax upfront because they will be collecting and remitting the sales tax when they sell the parts to their customer as part of the repair service.
Example of a Separated Invoice:
Consider the same oil change scenario, but this time the shop uses separated invoicing. They charge $20 for labor and $49.95 for parts (oil and filter). The shop can use a resale certificate to buy the oil and filter tax-free. They will then collect sales tax only on the $49.95 parts charge from the customer. The $20 labor charge is not taxed.
Similar to lump-sum invoicing, if a repairperson incorrectly charges sales tax on repair labor under a separated contract, they must still remit the collected tax. They can also correct this by refunding the incorrectly charged tax and amending their sales tax return.
When repairing a vehicle for a customer who is exempt from sales tax, and using a separated contract, the repairperson can accept an exemption certificate from the customer instead of collecting sales tax on the parts.
Consumable Supplies in Separated Invoices:
If a repairperson using a separated invoice separately charges for consumable supplies used directly in the repair, they must collect sales tax on the total charge for both parts and these consumables. They can purchase these consumable supplies tax-free using a resale certificate.
Warranty and Maintenance Agreements & Sales Tax
Warranties and maintenance agreements introduce another layer to sales tax considerations in auto repair.
Manufacturer’s Warranty & Recall Campaigns
When repairs are performed under a manufacturer’s warranty or as part of a recall campaign, neither the labor nor the parts furnished by the manufacturer are subject to sales tax. Repair shops must maintain records to prove that the services and parts were used for repairs under a manufacturer’s warranty or recall. They can also use an exemption certificate to purchase parts tax-free that will be used for these warranty or recall repairs.
Extended Warranties
For repairs performed under an extended warranty (which is not a manufacturer’s warranty), sales tax is due on the parts that are not covered by the manufacturer’s original warranty. The collection and remittance of this sales tax depend on whether the repair is invoiced using a lump-sum or separated method.
Maintenance Agreements
Some vehicle manufacturers offer free maintenance agreements when a vehicle is purchased, typically carried out by authorized dealers. Because these services are provided at no extra charge to the customer, they are treated like repairs under a manufacturer’s warranty—meaning parts used are not taxable.
However, vehicle owners can also purchase optional maintenance contracts. While the contracts themselves are not taxable, the parts used when performing repairs under these purchased maintenance contracts are taxable. The service provider must collect sales tax on these parts.
Goodwill Repairs and Implied Warranties
“Goodwill repairs” are often provided by dealers at no charge within a short period after a vehicle sale (e.g., within seven days), even if not covered by a written warranty. These repairs are considered to be under an implied warranty, and sales tax is not due on the parts used.
However, if a vehicle is sold “as is,” there is no implied warranty. In this case, even for goodwill repairs within the seven-day period, the dealer is responsible for paying sales tax on the parts. The taxability then aligns with the invoice and sales tax collection rules discussed earlier.
Remodeling and Accessories: Different Tax Rules
It’s important to distinguish between repairs and other types of auto services like remodeling and accessory installations, as these have different sales tax implications.
Remodeling Motor Vehicles: Taxable Labor and Parts
Remodeling a vehicle means modifying its style, shape, or form, going beyond just fixing broken components. Both parts and labor charges for remodeling are subject to sales tax in Texas. Examples of remodeling include:
- Installing body kits (lift kits, aerodynamic kits)
- Converting a van into a camper
- Enhancing vehicle performance
- Modifying interiors for custom sound systems
Crucially, remodeling does not include simply repairing, removing, or replacing a defective or non-operational part. Replacing a faulty factory car stereo with another car stereo is considered a repair, not remodeling, and therefore the labor is not taxable.
Sale and Installation of Accessories: Taxable Labor and Parts
Similarly, the sale and installation of motor vehicle accessories are taxable for both parts and labor. This includes items like:
- Car stereos (when sold and installed as new accessories, not replacements)
- Amplifiers
- Alarm systems
However, if you are merely replacing a defective, worn, or unsafe accessory or component, this is considered a repair, not a sale and installation.
Motor Vehicle Maintenance: Tax on Parts, Not Labor
Motor vehicle maintenance refers to work performed on a functioning vehicle to keep it operating safely and efficiently, preventing future problems.
Maintenance Labor: Just like with repairs, labor for motor vehicle maintenance is not subject to sales tax in Texas.
Maintenance Parts: However, sales tax is due on parts used for maintenance. The responsibility for paying this tax (customer, repairperson, or manufacturer) depends on whether a lump-sum or separated contract is used, following the same rules as for repairs.
Consumable Supplies: The taxability of consumable supplies for maintenance also mirrors the rules for repairs, depending on the type of invoice used.
Additional Resources
For more detailed information and specific scenarios, refer to the Texas Comptroller’s publication 94-113 (Motor Vehicle Repair, Maintenance, and Remodeling).
Texas Comptroller Publication 94-113 (04/2021)
In conclusion, to directly answer the question: No, Texas generally does not charge sales tax on auto repair labor. However, sales tax is applicable to parts used in repairs, remodeling services, and accessory installations. Understanding the nuances of lump-sum versus separated invoices, warranties, and the distinction between repair, remodeling, and maintenance is key to navigating Texas auto repair sales tax regulations correctly.
