City and County of Denver, Colorado
TAX GUIDE
Topic No. 4
AUTOMOTIVE SERVICE AND REPAIR
Items purchased by repair shops that are used in
performing services or are consumed by the shop are taxable. Examples of these
types of items are rags, solvents, hand tools, rubbing compounds, sandpaper,
paint thinner or reducer, etc. The repair shop must pay the sales or use tax
directly to the vendor of these supplies if the vendor is licensed and
authorized to collect and remit the tax. If the vendor is not licensed and
authorized to collect and remit the tax, then the repair shop must pay the use
tax directly to
As
a general rule, for an item to qualify for exemption from sales tax when
purchased by the repair shop on the basis of being for resale, it must become a
physical component of or be permanently attached to the vehicle being serviced,
and sales tax must be charged on the price of that item by the repair shop.
This would include such purchases as paint, car wax, filters, hubcaps, and
other materials or accessories affixed to the vehicle.
1. A body shop purchases masking tape and
degreaser for use in painting cars. These items are taxable to the body shop
because they do not become permanently affixed to the car being painted. These
are supplies that are used and consumed by the body shop in rendering its
service.
2. A repair shop purchases engine parts for
installation on a customer's car. The repair shop can purchase these parts for
resale because they become a permanent part of the car being repaired. The
repair shop would charge sales tax to its customer on the parts.
On sales made by repair shops, the taxable amount is
the total charge made to the customer, with deductions allowed for service or
labor charges if separately stated. Often there is a percentage or flat charge
for shop supplies included in the total price charged to the customer. This
charge is considered part of the selling price of the tangible personal
property and thus it is taxable.
If the customer’s repair shop subcontracts certain
work to another repair shop, commonly referred to as a sublet repair, the
sub-repair shop will charge sales tax to the customer’s repair shop on the
retail price of the parts used in the repair job unless specifically instructed
that the job is for resale. If for
resale, the tax will be billed to the customer by the customer’s repair shop on
the full sublet repair charge on the customer’s invoice. Deductions are allowed for service or labor
charges if separately stated on the customer’s invoice.
EXAMPLE
Jayne brings her hail-damaged BMW to ABC Auto Repair, needing
windshield replacement and dent removal to the body. Although ABC does its own dent repair work,
it subcontracts all glass and windshield replacements to DEF Glass as a resale
transaction. Upon completion of its
work, DEF invoices ABC for $175.00 for the windshield sublet repair. No sales tax is charged by DEF on this resale
transaction.
ABC’s invoice to Jayne for the repair work includes a labor-only charge
for dent removal of $110, and a sublet repair charge (for the windshield
replacement) of $250, for a total invoice amount of $360. ABC is required to collect sales tax on the
$250 charged for the sublet repair. No
sales tax is charged for the separately stated labor charge for dent removal.
Deposits on parts or accessories, which are
collected as a "core charge" or similar deposit and are held by the
seller until the purchaser returns a used or exchange part, are considered part
of the taxable purchase price of the part or accessory. Tax should be collected
by the seller on the entire purchase price including the deposit. When the
customer returns the used or exchange part for refund of deposit, the tax on the
deposit should be refunded to the customer along with the deposit. If the store
has remitted the sales tax charged on the deposit on a prior tax return, it
will be allowed to take a trade-in deduction on the current tax return.
EXAMPLE
A customer purchases a rebuilt starter from an auto parts retailer for
$35.00 plus a $10.00 deposit. The store should collect sales tax on $45.00.
When the customer returns his old starter to claim the $10.00 deposit, the
store should refund the $10.00 deposit plus the sales tax paid on the $10.00.
If the customer traded in the old starter at the time of purchase, there would
be no deposit collected and sales tax would be due only on the $35.00 purchase
price.
* DRMC Section 53-24(16). Definitions – Purchase
price – Sales.
* DRMC Section 53-24(17). Definitions – Retail sale
– Sales.
* DRMC Section 53-24(27). Definitions – Wholesale
sale – Sales.
* DRMC Section 53-25. Imposition of tax – Sales.
* DRMC Section 53-95(17). Definitions – Purchase
price – Use.
* DRMC Section 53-24(19). Definitions – Retail sale
– Use.
* DRMC Section 53-24(31). Definitions – Wholesale
sale – Use.
* DRMC Section 53-96. Imposition of tax – Use.
The
complete
THE ABOVE INFORMATION IS A SUMMARY IN LAYMAN’S TERMS
OF THE RELEVANT
01/08