May a Georgia motor-vehicle rental dealer buy oil for routine oil changes tax-free as a resale item?

Plain-English summary

A motor-vehicle rental dealer performed routine maintenance, including oil changes, on cars held for rent. It asked whether motor oil could be purchased tax-free for resale like certain vehicles and repair parts.

The Department ruled no. Georgia's rental-dealer regulation distinguishes:

• automobiles, trucks, trailers, repair parts, tires, and accessories that become part of rental vehicles, which may be bought tax-free for resale; from
• gasoline, fuel, oil, grease, soaps, tools, and other property used in the dealer's operations, which the dealer must buy tax-paid.

Because the dealer consumed the oil while maintaining its fleet, the oil was taxable operating property rather than a resale item.

What this means for you

Rental-vehicle operators

Do not treat every product placed into a rental car as inventory for resale. Georgia specifically classifies motor oil used in maintenance as a taxable operating supply.

Fleet maintenance and purchasing teams

Separate qualifying repair parts from consumables such as oil, fuel, grease, and soap in purchasing systems. The manufacturing machinery exemption did not apply to this rental-fleet activity.

Common questions

Q: Can the rental dealer purchase the rental vehicle itself tax-free for resale?

A: The cited regulation permits vehicles held for rent to be purchased for resale, but this ruling's holding concerns motor oil.

Q: Why is oil different from a repair part?

A: The regulation expressly lists oil among tangible property used in rental-dealer operations, while separately allowing repair parts that become part of rented vehicles.

Q: Does using the oil only in rental vehicles make it exempt?

A: No. The Department still treated it as consumed by the dealer in maintaining its fleet.

Q: Can another rental company rely on this ruling?

A: No. It applies only to the requesting dealer's oil purchases and maintenance facts.

Citations and references

Authorities:

• O.C.G.A. § 48-8-30(a) -- sales and use tax imposition
• Ga. Comp. R. & Regs. r. 560-12-2-.10(2) -- vehicles and parts held for rental
• Ga. Comp. R. & Regs. r. 560-12-2-.10(3) -- taxable rental-dealer operating supplies

Source

• Landing page: Georgia Sales & Use Tax Letter Rulings
• Original PDF: LR SUT-2017-02

Original ruling text

Georgia Letter Ruling: LR ST-2017-02
Dated: February 22, 2017
Topic: Motor Vehicle Rental

This letter is in response to your request for guidance on the application of Georgia sales and use tax to charges
incurred in maintaining motor vehicles held for rent.
Facts Presented by Taxpayer
[Redacted] (“Taxpayer”) is engaged in the business of renting motor vehicles (“rental vehicles”) to the public.
Taxpayer’s business requires the performance of routine maintenance and repair of the rental vehicles. Routine
maintenance includes oil changes.
Issue
What is the application of Georgia sales and use tax to Taxpayer’s purchase of oil for oil changes to maintain rental
vehicles?
Analysis
Georgia levies and imposes a tax (subject to certain specific exemptions) on the retail purchase, retail sale, storage,
use, or consumption of tangible personal property, certain enumerated services, and utilities. 1
Any person renting motor vehicles in Georgia must register as a dealer and collect and remit sales tax on the rental
charges. Such dealers purchase automobiles, trucks, trailers, repair parts, tires and accessories which become a part of
the vehicles to be leased or rented to other persons tax exempt for resale. 2 However, rental vehicle dealers “are required
to pay the tax on purchases of gasoline, fuel, oil, grease, soaps, tools and other tangible personal property used in
connection with their operations.”3
As the plain language of the Rule provides, repair parts that become part of a rental vehicle can be purchased tax
exempt, but consumable items used in connection with dealer operations are subject to tax. In the course of Taxpayer’s
operations as a rental vehicle dealer, Taxpayer maintains the rental vehicles by changing the oil, i.e., Taxpayer
purchases motor oil for Taxpayer’s use in maintaining the vehicles. As tangible personal property used in Taxpayer’s
operations, oil is subject to Georgia sales and use tax.4
Ruling
The purchase of oil by a rental vehicle dealer to maintain its rental vehicles is subject to Georgia sales and use tax.
The opinions expressed in this ruling are based upon the information contained in your request and limited to the
specific transactions, facts, circumstances and taxpayer in question. Should the circumstances regarding the
transactions change or differ materially from those represented, this ruling may become invalid. In addition, please be
advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon
which this advice is based may subject similar future transactions to a different tax treatment than that expressed in
this ruling.

1

O.C.G.A. §§ 48-8-1, 48-8-2(31)(A), and 48-8-30(a).
Ga. Comp. R. & Regs. r. 560-12-2-.10(2).
3
Ga. Comp. R. & Regs. r. 560-12-2-.10(3).
4
While Taxpayer inquired as to the applicability of O.C.G.A. § 48-8-3.2 and Ga. Comp. R. & Regs. r. 560-12-2-.62,
the exemptions found therein are for manufacturing machinery and equipment, and they are not applicable to the facts
presented by Taxpayer.
2