Are used auto parts bought from a junkyard subject to sales tax again when resold or incorporated into a repair, even though sales tax was already paid when the part was first sold as new?

Plain-English summary

Someone asked whether used auto parts bought from a junkyard are taxable, given that sales tax was presumably already paid once when the part was originally sold new. The Comptroller's answer: sales tax is a transaction tax, not a one-time product tax — it applies to the sale, lease, or rental of a taxable item any time title or possession transfers for consideration, citing Tex. Tax Code §§ 151.005, 151.051(a), 151.006, 151.151, and 151.154. Being used, and having already been taxed once, doesn't exempt a later resale.

The letter then explains how this plays out for an auto body shop buying used parts from the junkyard to repair a customer's vehicle, under 34 TAC Rule 3.290 (Motor Vehicle Repair and Maintenance):

• Under a separated repair contract (labor and parts billed as distinct line items), the body shop is a retailer that may issue a resale certificate to the junkyard for parts that will be incorporated into the customer's vehicle — buying those parts tax-free — but must then collect tax from the customer on the agreed contract price of the parts.
• Under a lump-sum repair contract (one combined price for labor and parts), the body shop is the ultimate consumer of the parts. It must pay sales tax to the junkyard when it buys the parts, and does not collect tax from the customer on any portion of the lump-sum charge — even when repairing a vehicle for a customer who would otherwise be tax-exempt.

What this means for you

Auto body shops and repair businesses

Your contract structure determines who pays tax and when. If you separately state parts and labor, buy junkyard/used parts tax-free via resale certificate and collect tax from your customer on the parts price. If you bill a lump sum, you pay tax on the parts yourself when you buy them and don't charge your customer tax separately — including for exempt customers, since you (not the customer) are the taxable purchaser in that structure.

Junkyards and used parts dealers

Every sale of a used part is a fresh taxable transaction (unless the buyer properly resale-certificates it) — the fact that tax was collected once already, on the part's original sale as new, doesn't create any ongoing exemption for later resales.

Accountants and tax professionals

This is a clean illustration of the "each sale is a separate taxable event" principle applied to used goods, paired with the standard separated-vs-lump-sum contractor framework under Rule 3.290. Note the lump-sum-contract quirk: the body shop pays tax on parts even for otherwise tax-exempt repair customers, since the shop (not the customer) is legally the consumer of the parts in that structure.

Common questions

Q: If sales tax was already paid on a part when it was new, is it exempt when resold used?
A: No. Sales tax applies to every sale of a taxable item for consideration, regardless of whether the item is used or how many times it's been sold before.

Q: Can an auto body shop buy used parts tax-free from a junkyard?
A: Yes, if operating under a separated repair contract — the shop can issue a resale certificate for parts incorporated into the customer's vehicle, then collect tax from the customer on the parts price.

Q: Does a lump-sum repair shop ever collect tax from the customer on parts?
A: No. Under a lump-sum contract, the body shop pays tax on the parts itself when purchased and doesn't collect any tax from the customer on the lump-sum charge, even for an exempt customer.

Q: Can I rely on this letter for my own repair business?
A: No. This opinion is rendered based on the facts presented; other facts, though similar, may yield different results.

Citations and references

Statutes and rules:

• Tex. Tax Code §§ 151.005, 151.051(a), 151.006, 151.151, 151.154 (imposition of sales tax on each sale for consideration)
• 34 TAC Rule 3.290 (Motor Vehicle Repair and Maintenance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200005255L

Original ruling text

May 3, 2000

Dear ***:

Thank you for your recent e-mail regarding the taxability of used auto parts
purchased from a junkyard.

Sales tax is a transaction tax imposed on the sale, lease, or rental of taxable
items. A sale occurs when title or possession of a taxable item transfers for
consideration. Each time an item is sold for consideration sales tax is due.
See Texas Tax Code Sections 151.005, 151.051(a), 151.006, 151.151 and 151.154.
The fact that the item is used does not change the taxability of the
transaction.

The body shop, under a separated repair contract, is a retailer and may issue a
resale certificate in lieu of tax to the junkyard for parts that will be
incorporated into the motor vehicle of the customer. The body shop must collect
tax from the customer on the agreed contract price of the parts. See Rule 3.290
on Motor Vehicle Repair and Maintenance.

Under a lump-sum contract, the body shop is the ultimate consumer of all parts
incorporated into the motor vehicle being repaired. The lump-sum repairman
(body shop) must pay sales tax to the junkyard for parts at the time of
purchase. The body shop will not collect tax from customers on the lump-sum
charge or any portion of the charge. Under this type of contract, the body
shop will pay the tax on parts even when the motor vehicle is repaired for an
exempt customer.

To view Rule 3.290, please go to our web site address at
and click on "The Sales Tax" under the quick links
column. Scroll down and click on "Current Tax Rules", and then click on the
specific rule.

This opinion is rendered based on the facts presented. Other facts though
similar, may yield different results.

If you have any questions or require additional information, you may call
1-800-531-5441, extension 6-5809. You may write to Tax Policy Division, P. O.
Box 13825, Austin, Texas 78711-3825. You may also submit inquiries to our tax
help Internet address at .

Sincerely

Emilio S. Lerma
Tax Policy Division