Sales, Use and International Tax Activity Update - January 2010

Texas Looks Under the Hood of Vehicle Repair Invoices

The October issue of Tax Policy News clarifies the sales tax billing requirements for motor vehicle repair shops and oil change businesses.

When an automotive repair or maintenance shop bills a customer a lump-sum charge for both labor and materials, the shop should not collect sales tax on that charge. The shop must pay sales tax on all parts and materials used to perform the service, but may not bill the customer directly for the sales tax paid on those items. Instead, the shop may build those costs into the lump-sum charge for the service.

A shop that bills separately for parts and labor must collect tax from its customers on the separately stated charge for the parts. The shop can purchase these parts tax free by providing a resale certificate to suppliers.

If there is a contract to perform the repair, the contract terms determine the type of billing. If the contract is for a lump-sum amount, invoices separating charges for parts from labor will not change a lump-sum billing into a separated billing unless required by the terms of the contract.

A shop that wants to charge a lump-sum amount for an oil change but charge separately for some additional repairs should use one invoice for the oil change and another for the repairs. Alternatively, the shop can put the lump-sum oil change on one line of the invoice, not break down those lump-sum charges anywhere else on the invoice, and then separate the charges for repair labor and repair materials and parts.

Further exploration of this issue can be found the Texas Comptrollers’ Web site.

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