If your business is involved in repairing, remodeling, or maintaining motor vehicles, or if you sell and install automotive accessories, understanding Texas sales tax is crucial. As a car repair professional, particularly when dealing with car motors, you need to know your responsibilities for collecting and remitting sales tax to the Texas Comptroller’s office. This guide breaks down the essentials to ensure your business operates smoothly and complies with state regulations.
Understanding Motor Vehicle Definitions for Sales Tax
In Texas, the term “motor vehicle” is broad for sales tax purposes. It generally includes any self-propelled vehicle designed to transport people or property on public roads, as well as vehicles towed by such vehicles for carrying property. This encompasses a wide range of vehicles, such as:
- Automobiles
- Buses
- Vans
- Motor homes
- Street legal motorcycles
- Trucks and truck tractors
- Truck cabs and chassis
- Semi-trailers
- Trailers
- Travel trailers
However, certain devices are excluded from the motor vehicle definition, including:
- Human-powered devices (like bicycles)
- Vehicles exclusively used on rails or tracks (like trains)
- Road-building machinery
- Mobile offices
- Vehicles with salvage vehicle titles
- Abandoned or nonrepairable vehicles
- Vehicles declared a total loss by insurance companies
- Oilfield portable units
As a motor vehicle repairperson, auto mechanic, or technician, your expertise lies in repairing, remodeling, and maintaining these motor vehicles, including their motors. This often involves restoring or replacing malfunctioning components, making you responsible for understanding and applying sales tax correctly.
Alt text: Mechanic expertly repairs a car engine, highlighting the hands-on nature of motor vehicle repair.
Sales Tax Responsibilities in Motor Vehicle Repairs
When you undertake car motor repairs in Texas, your sales tax obligations are determined by the nature of your services and sales. Key factors influencing your tax responsibilities include:
- Whether you are selling only repair labor or a combination of labor and parts.
- The type of invoice you use: lump-sum or separated.
- Whether the repair is covered by a warranty.
Repair Labor and Sales Tax
It’s important to note that labor for repairing a motor vehicle is not subject to sales tax in Texas. This means when you charge for the service of fixing or replacing components of a car motor, the labor cost itself is tax-exempt. For example, if you charge specifically for the time and effort to diagnose and fix an engine issue, this labor charge is not taxable.
Repair Parts and Sales Tax
In contrast to labor, parts used in car motor repairs are taxable. Sales tax application on parts depends on your invoicing method and warranty situations, and is generally paid by either the customer, your repair shop, or the vehicle manufacturer. Understanding who pays the sales tax on parts is crucial for compliance.
Consumable Supplies in Car Motor Repair
During car motor repairs, you likely use consumable supplies. These are items that are used up or cannot be reused in their original purpose, such as:
- Shop rags
- Floorboard covers
- Solvents and cleaners
- Masking tape
- Body fillers (if applicable to motor area work)
- Sandpaper and disks
- Waxes and polishes (for related cleaning)
These consumable supplies are taxable to you, the repairperson, as the end consumer, and are subject to sales tax when you purchase them.
Tools and Equipment for Car Motor Repair
The tools and equipment you use for car motor repairs, from wrenches to diagnostic scanners, are considered purchases for your business operations. As the user of these tools, you are the ultimate consumer and must pay sales tax on these items when you buy them. You cannot charge sales tax to your customers for the use of your tools and equipment.
Invoicing Methods and Sales Tax Collection for Motor Repairs
Your invoicing method significantly affects how you handle sales tax. Texas recognizes two primary types of invoices in the context of motor vehicle repair: lump-sum and separated.
Lump-Sum Invoice: Tax Implications
When you issue a lump-sum invoice, you charge a single, all-inclusive price for both parts and labor for the car motor repair. In this case, you should not collect sales tax from your customer. Instead, your business is responsible for paying sales tax to your suppliers when you purchase the parts needed for the repair.
For example, if you offer a “motor tune-up special” for a single price that includes new spark plugs, filters, and labor, you pay sales tax when you buy these parts and do not charge sales tax to your customer for the service.
Even if you are performing a repair for a customer who is otherwise exempt from sales tax, using a lump-sum contract means you still pay sales tax on the materials. If you mistakenly collect sales tax from a customer on a lump-sum invoice (covering both parts and labor), you must still remit this collected tax to the state and pay sales tax on your parts purchases. You would then need to refund the incorrectly collected tax to your customer and can amend your sales tax return to seek a credit or refund.
Consumable Supplies Under Lump-Sum Invoices
When using lump-sum invoices for car motor repairs, remember that consumable supplies are taxable to your business. You are the final consumer of these supplies.
Separated Invoice: Tax Implications
In contrast to lump-sum billing, a separated invoice itemizes charges for parts and labor separately. With this method, you are required to collect sales tax from your customer, but only on the parts. The labor charge remains non-taxable. When purchasing parts from your suppliers for repairs under separated invoices, you can provide a resale certificate instead of paying sales tax, as you will be collecting tax from your customer on these parts.
For example, if a motor repair involves replacing a starter, and you invoice separately for the starter part and the labor to install it, you will collect sales tax only on the charge for the starter part.
Similar to lump-sum invoices, if you incorrectly charge sales tax on repair labor under a separated invoice, you must remit the incorrectly collected tax. You can seek a refund or credit by amending your sales tax return after refunding the tax to your customer. However, when dealing with exempt customers under a separated contract, you can accept an exemption certificate instead of collecting sales tax on the incorporated materials.
Consumable Supplies Under Separated Invoices
If you separately bill for consumable supplies used directly in repairing a car motor, you must collect sales tax on these consumable supplies as well, in addition to the parts. You can purchase these consumable supplies tax-free by using a resale certificate when buying them from your suppliers.
Warranty Repairs and Maintenance Agreements related to Car Motors
Warranty repairs and maintenance agreements have specific sales tax rules.
Manufacturer’s Warranty or Recall Campaigns
When you perform car motor repairs under a manufacturer’s warranty or a recall campaign, neither the labor nor the parts you provide are subject to sales tax. It is crucial to maintain records that clearly document that the services and parts were used for repairs under a manufacturer’s warranty or recall. You can buy parts tax-free by providing an exemption certificate to your supplier for parts used in these warranty or recall repairs.
Extended Warranties
For repairs covered by an extended warranty (not a manufacturer’s warranty), sales tax is applicable to parts not covered by the manufacturer’s original warranty. The collection and remittance of sales tax depend on whether you are using a lump-sum or separated invoice for these repairs.
Maintenance Agreements
Some vehicle purchases include free maintenance agreements, often handled by authorized dealers. Similar to manufacturer’s warranties, parts used in these free maintenance services are not taxable. However, optional maintenance contracts that customers can purchase are not taxable themselves, but parts used when performing repairs under these purchased maintenance agreements are taxable. As the service provider, you must collect sales tax on these parts.
Goodwill Repairs and Implied Warranties
“Goodwill repairs” are often performed by dealers shortly after a vehicle sale, outside of a written warranty. In Texas, if a dealer repairs a car motor within seven calendar days of the sale, and it’s not under a written warranty, these “goodwill repairs” are considered under an implied warranty, and sales tax is not due on the parts. However, if a vehicle was sold “as is,” no implied warranty exists. In this case, the dealer is responsible for sales tax on parts used in goodwill repairs, even if done within seven days of sale. The invoicing method (lump-sum or separated) will then determine tax responsibilities as discussed earlier.
Remodeling and Car Motors
Remodeling a motor vehicle, which means altering its style, shape, or form, including modifications related to the motor for performance enhancements, is subject to sales tax on all parts and labor charges. Examples include:
- Installing performance-enhancing motor components
- Modifying engine systems for increased power
However, simply repairing, removing, or replacing a defective motor component is considered repair, not remodeling.
For instance, replacing a faulty factory-installed engine component with a similar part is a repair, not a remodel.
Sale and Installation of Motor Vehicle Accessories
Sales tax applies to both parts and labor for selling and installing motor vehicle accessories. This could include performance monitoring systems or aftermarket engine components intended to enhance or alter the vehicle’s motor functions beyond repair. However, replacing a worn or defective accessory is considered a repair, not a sale and installation of a new accessory.
Motor Vehicle Maintenance and Car Motors
Motor vehicle maintenance includes work needed to keep an operational motor vehicle, including its motor, in good working order, preventing decline or failure.
Maintenance Labor: Similar to repair labor, labor for motor vehicle maintenance is not taxable.
Maintenance Parts: Sales tax is due on parts used in motor vehicle maintenance, including motor maintenance. The responsibility for paying sales tax depends on whether you use a lump-sum or separated contract, as discussed in the repair section.
Consumable Supplies: Taxability of consumable supplies for motor vehicle maintenance depends on the invoice type (lump-sum or separated), mirroring the rules for repairs.
Additional Resources
For more detailed information, refer to Texas Comptroller Publication 94-113 (04/2021).
