Sales Tax Audit for Tire Shops
The most common problems that arise during sales tax audits for tire shops pertain to the following issues:
1. Bring Your Own Part (BYOP)
If your customers are bringing in their own parts for you to simply install, it must be clearly noted as such on your invoices.
Important:
If your invoice says “to replace the part,” you will have a problem during the audit because it appears as if you are selling parts in addition to labor. This creates a taxable event.
Best Practice:
- Break out your invoices by line item to clearly separate labor from parts.
2. Resale Certificates
Many tire shops sell tires to other stores. This is common when a shop does not have a specific tire in stock and sources it from a neighboring shop.
Important:
If you do not have a valid resale certificate from the other tire shop:
- You will either have to charge the tire shop sales tax (which they may assume they do not have to pay)
- Or you will have to pay the sales tax after the audit
3. Purchases from eBay Motors
This is one of the most damaging issues in an audit.
Important:
If you are ordering parts from eBay Motors and you paid sales tax, you must keep the receipt.
If you did not pay sales tax, then you must pay the use tax.
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- Always separate labor and parts on invoices (especially BYOP scenarios)
- Ensure you collect and maintain valid resale certificates
- Maintain documentation for all purchases, including those made through eBay Motors
Frequently Asked Questions
What should a tire shop include on invoices when customers bring their own parts?
If a customer brings their own parts (BYOP), the invoice must clearly indicate that the shop is only providing labor. Avoid phrases like “to replace the part,” as they can make it appear that the shop is selling parts, triggering a taxable event. Always separate labor and parts line-by-line.
Do I need a resale certificate when selling tires to another shop?
Yes. If you’re selling to another tire shop and they claim exemption from sales tax, you must collect and keep a valid resale certificate. Without one, you may have to pay the sales tax yourself after an audit.
What happens if I purchase parts from eBay Motors without paying sales tax?
If you didn’t pay sales tax on eBay Motors purchases, you are required to pay use tax. Keeping the receipt is essential to prove whether tax was paid and to avoid audit penalties.
How can tire shops avoid common sales tax audit issues?
Shops should always separate labor and parts on invoices, maintain up-to-date resale certificates for all exempt sales, and retain receipts or documentation for all purchases, especially from online platforms like eBay Motors.
What’s the risk of unclear invoice language during a sales tax audit?
Unclear or misleading invoice language, such as not distinguishing between labor and parts, can make it seem like the shop is making taxable sales, leading to unexpected tax liabilities during an audit. Precision in invoicing is critical.