When are motor vehicle towing, transport, and roadside assistance services taxable in Connecticut, and can they be bought for resale?

Plain-English summary

A vehicle rental and leasing company moves its cars around a lot: between rental lots, to auction lots, and to and from body/repair shops. It also buys roadside assistance (fuel delivery, tire changes, unlocking vehicles) for its fleet. It asked which of these purchases are taxable in Connecticut — where "motor vehicle towing and road services" are a specifically enumerated taxable service — and whether it can buy any of them for resale.

The Department of Revenue Services drew the line based on how the vehicle is moved and why:

• Carrier truck vs. wrecker. Moving vehicles between lots or to an auction lot on an automobile carrier truck is not taxable — that's specialized freight trucking (a different industry category), not towing. But moving the same vehicles by a wrecker or flatbed wrecker is taxable towing, because there is no exclusion from towing for hauling your own inventory.
• Tows to/from repair or body shops. Wrecker/flatbed transport to or from a repair or body shop is taxable towing — even for a dealer's or rental company's own vehicles.
• Roadside assistance (jump-starts, tire changes, fuel, unlocking) is taxable "road services."

But there's relief: the taxable towing and roadside services can be purchased for resale — the company doesn't pay tax on them if it passes the charge along to its customers and collects sales tax from those customers on the charge. So the tax is ultimately paid once, by the end customer, when the company re-bills the service.

What this means for you

Vehicle rental, leasing, and dealer fleets

The equipment used to move the car decides the tax. Flatbed/wrecker moves are taxable towing; carrier-truck transport of your inventory is not. Don't assume moving your own vehicles is automatically non-taxable — there's no "it's my inventory" exclusion for wrecker towing. Where you re-bill a taxable tow or roadside service to a customer, buy it for resale and charge the customer sales tax rather than paying tax on the purchase yourself.

Towing operators

Know which of your services are taxable towing versus non-taxable carrier-truck freight, because your customers will expect the right treatment. Roadside assistance (jump-starts, tire changes, lockouts, fuel) is taxable road service.

Accountants and tax professionals

The enumerated category is Conn. Gen. Stat. § 12-407(a)(37)(II) (motor vehicle towing and road services). DRS used the North American Industry Classification System (NAICS) to separate towing/wrecker services (Code 488410) from specialized freight/automobile-carrier transport (Codes 484220/484230). The resale mechanism turns on the company actually re-billing the customer and collecting tax; if it eats the cost, it owes the tax as the consumer. The ruling states it clarifies the dealership-inventory discussion in Special Notice 2011(10).

Common questions

Q: Is towing taxable in Connecticut?
A: Wrecker and flatbed-wrecker towing is a taxable "motor vehicle towing and road service." Moving vehicles on an automobile carrier truck is treated as freight transport, not towing, and is not taxable.

Q: My company moves its own vehicles — is that still taxable?
A: If it's done by wrecker or flatbed wrecker, yes — there's no exclusion for hauling your own inventory. If it's on an automobile carrier truck, no.

Q: Is roadside assistance taxable?
A: Yes. Jump-starting, changing tires, delivering fuel, and unlocking vehicles are taxable "road services."

Q: Can I avoid paying tax on these purchases?
A: You can buy the taxable towing/road services for resale — meaning you don't pay tax on the purchase — but only if you pass the charge on to your customer and collect Connecticut sales tax from the customer on it.

Citations and references

Statutes:

• Conn. Gen. Stat. § 12-408 (sales tax on tangible personal property)
• Conn. Gen. Stat. § 12-407 (services taxed only if enumerated)
• Conn. Gen. Stat. § 12-407(a)(37)(II) (motor vehicle towing and road services)

Administrative guidance and references:

• North American Industry Classification System (NAICS) Codes 488410 (towing) and 484220/484230 (specialized freight/auto-carrier transport)
• Special Notice 2011(10), Sales and Use Tax Changes Affecting Motor Vehicle Dealers

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 2017-4

Original ruling text

Ruling 2017-4 - Sales and Use Taxes - Motor Vehicle Towing and Road Services Resale of Services

FACTS:

The Company is engaged in the short-term rental and long-term lease of motor vehicles. The Company hires towing companies to transport its motor vehicles between its rental lots and to transport motor vehicles from its rental lots to auction lots.  The Company also hires towing companies to transport its motor vehicles to and from body shops or repair shops, for which it may or may not charge its customers.  Additionally, the Company purchases roadside assistance services, such as providing fuel, changing tires, and unlocking vehicles, for which it also may or may not charge its customers.

ISSUES:

Are purchases of motor vehicle transportation services by the Company taxable as motor vehicle towing services when its vehicles are transported between its rental lots or from its rental lots to an auction lot?

Are purchases of motor vehicle transportation services by the Company taxable as motor vehicle towing services when its vehicles are transported to or from a body shop or repair shop?

Are purchases by the Company of roadside assistance services for its vehicles taxable?

RULINGS:

Purchases of motor vehicle transportation services by the Company are not taxable as motor vehicle towing services when its vehicles are transported between its rental lots or from its rental lots to an auction lot on automobile carrier trucks.  However, when the vehicles are transported between rental lots or to an auction lot by a wrecker or flatbed wrecker, the towing services are taxable.

Purchases of motor vehicle transportation services by the Company are taxable as motor vehicle towing services when its vehicles are transported by a wrecker or flatbed wrecker to or from a body shop or repair shop. However, these purchases by the Company may be excluded from tax as purchases for resale if the charges for such services are passed on to the Company’s customers and the Company collects sales tax from its customers on such services.

Purchases by the Company of roadside assistance services for its vehicles are taxable as road services. However, these purchases by the Company may be excluded from tax as purchases for resale if the charges for such services are passed on to the Company’s customers and the Company collects sales tax from its customers on such services.

DISCUSSION:

Connecticut imposes sales and use tax on all sales of tangible personal property unless the sale of such property is specifically exempt from tax.  Conn. Gen. Stat. § 12-408.  In contrast, Connecticut only imposes sales and use tax on sales of services that are specifically enumerated as taxable in Conn. Gen. Stat. § 12-407.  Motor vehicle towing and road services are specifically enumerated as being subject to tax in Conn. Gen. Stat. § 12-407(a)(37)(II).

Towing and road services are described in Code 488410 of the North American Industry Classification System, United States Office of Management and Budget, 2017 edition (NAICS) as including emergency road services, tow truck services, and wrecker services.  Towing and road services exclude transportation of vehicles using automobile carrier trucks, which are described in NAICS Codes 484220 and 484230, each of which addresses Specialized Freight Trucking.

Thus, when the Company hires an automobile carrier truck to move its vehicles between its rental lots or from its rental lots to an auction lot, the purchase of these motor vehicle transportation services are not taxable because they are not motor vehicle towing services. However, if the Company engages a wrecker or flatbed wrecker to move its vehicles between its lots or to an auction lot, the charge is taxable because there is no exclusion from motor vehicle towing services for the transportation of inventory. [1]

In contrast, the transportation of vehicles by wrecker or flatbed wrecker to or from a repair shop or body shop is included in taxable motor vehicle towing services, even when such vehicles are owned by a motor vehicle dealership or a motor vehicle rental or leasing company.  Therefore, the Company’s purchase of these motor vehicle transportation services are taxable because they are motor vehicle towing services.  The Company may purchase motor vehicle towing services on resale if the Company charges the customer for the towing and collects tax on such charge.

As stated above, road services are specifically enumerated as taxable services in Conn. Gen. Stat. § 12-407(a)(37)(II). “Road services” are also known as roadside assistance services, and include, among other services, jump-starting cars, changing flat tires, and opening locked vehicles. Special Notice 2011(10) , Sales and Use Tax Changes Affecting Motor Vehicle Dealers.   Therefore, the Company’s purchase of roadside assistance services are taxable as road services. The Company may purchase road services on resale if the Company charges the customer for these services and collects tax on such charge.

LEGAL DIVISION

August 4, 2017

[1] This Ruling clarifies the discussion of transportation of dealership inventories in Special Notice 2011(10) , Sales and Use Tax Changes Affecting Motor Vehicle Dealers .