Is your automotive repair shop undergoing a sales tax audit? Make sure to pay special attention to the differences between consumables, repairs, and fabrication. Warranties also require different taxation rules.
Understanding Sales Tax Rules for Auto Repairs
Is your automobile repair business under a sales tax audit? I’m Mansoor Ansari with Nexus Tax Defense. Let’s go over a few short rules on the taxation of auto repair.
1. Repair Labor
- The labor used to fix an automobile is non-taxable.
2. Repair Parts
- These are actual parts such as brakes and rotors used to repair automobiles.
- These parts are taxable.
3. Consumables
- Supplies such as grease or wipes used during automobile repairs.
- These are taxable unless you have a resale certificate.
Taxation of Warranty Repairs and Maintenance Agreements
Manufacturer Warranties
- Repair labor or parts provided under manufacturer warranties are non-taxable.
- Parts purchased for repairs under manufacturer warranty or recall are tax-free when an exemption certificate is issued.
Maintenance Agreements (Manufacturer Provided)
- Fully tax-free for both parts and labor.
Extended Warranties & Optional Maintenance Contracts
- The contracts themselves are not taxable.
- However, parts used in performing repairs under these agreements are taxable.
- The service provider must collect sales tax on these parts.
Special Case: Dealer Repairs within Seven Days of Purchase
Here’s the biggest twist:
- If a dealer repairs an automobile within seven days of purchase, a warranty is implied, making it a non-taxable sale.
- However, if the invoice states “as is,” then the parts are taxable.
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