Is customizing a customer's car with performance and body enhancements taxable in Connecticut as a repair, or as fabrication of the customer's property?

Plain-English summary

A company took customers' motor vehicles and, over about three weeks, added engine and body enhancements — "customization" that improves the vehicle's performance through work on the engine and exhaust system plus body upgrades, materially increasing the vehicle's value. DRS was asked two questions: is that work taxable as a motor vehicle repair service, and/or as the fabrication or processing of a customer's property?

Not a taxable repair. Conn. Gen. Stat. § 12-407(2)(i)(M) taxes "motor vehicle repair services." But Policy Statement 92(8) defines those services as (a) maintenance that keeps a vehicle in good working order, and (b) repairs that mend or restore a vehicle "that was damaged, malfunctioning or defective." Customizing a working vehicle is neither. DRS noted the rule of construction that an imposition statute like § 12-407 must be read, where ambiguous, against the taxing authority and in favor of the taxpayer (citing Plasticrete Corp. v. Commissioner). So the enhancements are not taxed as motor vehicle repair services.

But a taxable fabrication. Conn. Gen. Stat. § 12-407(2)(c) taxes "the producing, fabricating, processing, printing or imprinting of tangible personal property" for consumers who furnish the materials — and DRS reads that to include customizing a customer's own property. So the vehicle enhancements are taxable fabrication/processing. This kind of fabrication is taxable only when delivered in Connecticut: the company must collect Connecticut sales and use tax when the vehicle is picked up by the customer in Connecticut or is delivered or shipped to a Connecticut location. If instead the company ships the finished vehicle out of state, no Connecticut sales tax is due (although Connecticut use tax could apply if the vehicle is later brought back into Connecticut).

The takeaway: labeling matters less than the statute. Even though customization escapes the "repair services" category, the very same work is caught by the broader "fabrication or processing of a customer's property" category.

What this means for you

Auto customizers, tuners, and performance shops

Charges to customize a customer's vehicle (engine/exhaust performance work, body enhancements) are taxable in Connecticut — not as repairs, but as fabrication or processing of the customer's tangible personal property under § 12-407(2)(c). Collect sales tax on those charges when the car is delivered in Connecticut.

"It's not a repair" is not "it's not taxable"

DRS agreed the work wasn't a taxable repair because the vehicle wasn't damaged, malfunctioning or defective. But that only moves the work into a different taxable category. Don't treat "not a repair service" as tax-free — customization of a customer's property is separately taxable.

Where delivery happens controls Connecticut tax

Fabrication under § 12-407(2)(c) is taxable when delivered in Connecticut. If the customer picks the vehicle up here, or you deliver/ship it to a Connecticut address, charge Connecticut tax. If you ship it to an out-of-state location, no Connecticut sales tax — but a later return of the vehicle to Connecticut can trigger use tax.

Common questions

Q: Is customizing a car taxable in Connecticut?
A: Yes. Even though it isn't a taxable motor vehicle "repair service," DRS held customization is taxable under § 12-407(2)(c) as the fabrication or processing of the customer's own property.

Q: Why isn't customization a taxable repair?
A: Because Policy Statement 92(8) limits taxable "motor vehicle repair services" to maintaining a vehicle or mending one that was damaged, malfunctioning or defective. Enhancing a working vehicle doesn't fit, and tax-imposition statutes are construed in the taxpayer's favor when ambiguous.

Q: When do I have to charge the tax?
A: When the vehicle is picked up by the customer in Connecticut, or delivered or shipped to a location within Connecticut. Delivery in-state is the trigger.

Q: What if I ship the finished vehicle out of state?
A: No Connecticut sales tax is due on an out-of-state delivery. But Connecticut use tax may apply if the vehicle is later brought back into Connecticut.

Citations and references

Statutes, guidance, and case law:

• Conn. Gen. Stat. § 12-407(2)(i)(M) (taxable motor vehicle repair services)
• Conn. Gen. Stat. § 12-407(2)(c) (taxable producing, fabricating, processing of a customer's tangible personal property)
• Conn. Gen. Stat. § 12-407 (imposition statute construed against the taxing authority)
• Policy Statement 92(8) (defines "motor vehicle repair services")
• Plasticrete Corporation v. Commissioner, 216 Conn. 17, 25, 579 A.2d 20 (1990)

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 93-18

Original ruling text

Ruling 93-18, Sales and Use Taxes / Repairs to Motor Vehicles / Fabrication or Processing of Customer's Property

FACTS:

The Company provides engine and body enhancements to its customers' motor vehicles. Such enhancements (or "customization"), provided in a process that takes approximately three weeks, materially increase the value of the motor vehicles by improving their performance through improvements made to the engines and exhaust systems and body enhancements.

ISSUE:

Whether the customization of motor vehicles is taxable as a motor vehicle repair service under Conn. Gen. Stat. § 12-407(2)(i)(M).

Whether the customization of motor vehicles is taxable as the fabrication or processing of property belonging to a customer under Conn. Gen. Stat. § 12-407(2)(c).

DISCUSSION:

Conn. Gen. Stat. § 12-407(2)(i)(M) includes in the definition of "sale" and "selling" "motor vehicle repair services, including any type of repair, painting or replacement related to the body or any of the operating parts of a motor vehicle." Policy Statement 92(8) defines "motor vehicle repair services" as:

... all maintenance services that keep a motor vehicle in good working order by preventing its decline, failure, lapse or deterioration, including but not limited to replacing vehicle fluids (e.g., oil), lubricating the chassis, replacing spark plugs and filters, rotating tires, recharging the air conditioning system, rust proofing, and applying fabric protection or paint sealant. Motor vehicle repair services also mean all repair services that mend or bring back as near as possible to original working order a motor vehicle that was damaged, malfunctioning or defective, including any painting or replacements related to the body or any of the operating parts of a motor vehicle.

Policy Statement 92(8) limits the interpretation of the activities taxed as "motor vehicle repair services" to the replacement of parts in a vehicle that was "damaged, malfunctioning or defective," thus excluding the replacement of parts in connection with customizing a motor vehicle. As a matter of statutory construction, when an imposition statute such as Conn. Gen. Stat. § 12-407 is involved, any ambiguity must be resolved by construing the statute against the taxing authority and in favor of the taxpayer. See, e.g., Plasticrete Corporation v. Commissioner, 216 Conn. 17, 25, 579 A.2d 20 (1990). Therefore, the Company's motor vehicle enhancements are not taxable as motor vehicle repair services enumerated in Conn. Gen. Stat. § 12-407(2)(i)(M).

Conn. Gen. Stat. § 12-407(2)(c) includes in the definition of "sale" and "selling" "the producing, fabricating, processing, printing or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing or imprinting ..." Charges for labor that are taxable under Conn. Gen. Stat. § 12-407(2)(c) include, among other processes, the customization of tangible personal property belonging to the customer. Thus, the motor vehicle enhancements provided by the Company constitute taxable fabrication or processing. The activities described in Conn. Gen. Stat. § 12-407(2)(c) are taxable only when delivered in Connecticut. Therefore, the Company must collect Connecticut sales and use taxes on its charges for providing motor vehicle enhancements when the vehicle is picked up by the customer in Connecticut or is delivered or shipped to a Connecticut location. If the vehicle is delivered or shipped by the Company to a location outside Connecticut, no Connecticut sales tax is due (although Connecticut use tax may be due if the motor vehicle returns to Connecticut).

RULING:

The customization of motor vehicles is not taxable as a motor vehicle repair service under Conn. Gen. Stat. § 12-407(2)(i)(M). However, such customization is taxable under Conn. Gen. Stat. § 12-407(2)(c) as the fabrication or processing of tangible personal property belonging to a customer, when the vehicle is picked up by the customer in Connecticut or is delivered or shipped to a location within Connecticut.

LEGAL DIVISION

Issued: October 7, 1993