How did Texas tax truck fabrication, equipment installation, wreck repair, replacement, and body-conversion work?

Plain-English summary

The Texas Comptroller distinguished nontaxable motor-vehicle repair labor from taxable remodeling and from taxable sales and installation work.

For a chassis completed into a commercially viable truck, the work was the final manufacturing stage when performed for a dealer, so the dealer could give a resale certificate. When performed for the end user, fabrication labor and materials were taxable, while separately stated installation labor could be excluded. Later additions by the outfitter after another manufacturer applied final certification received the same treatment.

Adding equipment such as a lift gate to an in-use truck was a sale and installation: tax applied to the total charge, except separately stated installation charges could be excluded. The same answer applied to adding lights, reflectors, mud flaps, mirrors, and toolboxes.

Replacing wreck-damaged equipment as part of repairing a motor vehicle produced nontaxable repair labor. On a lump-sum bill, the shop paid tax on materials and collected no tax from the customer; on a separated bill, tax applied to the material charges.

Replacing existing equipment with identical or substantially similar equipment was treated as sale and installation. A replacement that increased load capacity or function was remodeling, making the entire charge taxable. Changing a beverage truck to a flatbed, or installing the removed beverage body on another truck, was also taxable remodeling. Dealer transactions could use a resale certificate.

What this means for you

Truck outfitters and conversion shops

The tax result turned on whether the job was final manufacturing for resale, sale and installation for an end user, repair, or remodeling.

Repair shops

Wreck repair kept labor nontaxable in the described job, but lump-sum and separated billing changed who paid tax on materials.

Accountants and tax professionals

Document the vehicle's prior use, the equipment being added or replaced, whether function or capacity changes, the customer type, and whether installation is separately stated.

Common questions

Q: Was motor-vehicle repair labor taxable?
A: No, under this letter.

Q: Was remodeling labor taxable?
A: Yes.

Q: Could separately stated installation labor be excluded?
A: Yes, for the sale-and-installation transactions described.

Q: What if replacement equipment increased load capacity or function?
A: The letter treated the job as remodeling and taxed the entire charge.

Q: Could a dealer provide a resale certificate?
A: Yes, when the dealer would sell the vehicle.

Citations and references

• The letter cites no statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8410L0634C05

Original ruling text

October 29, 1984

Dear ***:

Thank you for your letter concerning the new tax on labor as it relates
to your business.

The labor to repair motor vehicles is not taxable under the new law.
Remodeling labor performed on a motor vehicle, however, is taxable.

A. We are brought a chassis. At this point it is not equipped nor has it
had the "Final Certification" attached. We furnish and install whatever is
necessary to make this chassis a commercially viable truck, (dump, van,
tractor rig-up, utility, etc.). When we have completed this job we will affix
a "Final Certification" sticker. Is our labor nontaxable or taxable?

Answer: This is considered the final stage of manufacturing when done for
a truck dealer who is selling the motor vehicle. You would obtain a resale
certificate from him in lieu of any tax. It is considered a sale and installation
when done for the end user. Sales tax is due on the charge for the fabrication
labor and materials used. Separately stated charges for installation labor may be
excluded from the tax base.

B. Circumstances are similar to above regarding chassis, however, we contract
out the installation of the major equipment (for instance van body) to the
manufacturer and at this point he must, because of the work he has performed,
place the "Final Certification" on the truck. At this point the truck is
delivered back to our shop and we are required to perhaps make further additions,
for instance a lift gate. What work we do in our shop may or may not require
an "Alternation" sticker. We will bill the customer for the complete job.
Is ourlabor nontaxable or taxable?

Answer: Same as A.

C. A customer brings us a truck which he has been using and requests that
we add a piece of equipment to same, for example, he now wants a lift gate on
this truck. Would our labor involved in accomplishing this be nontaxable or
taxable?

Answer: This is considered a sale and installation. Tax is due on the total charge.
Any separately stated charges for installation may be excluded from the tax base.

D. A truck owner has his truck wrecked. in assessing the damage it is determined
that the equipment (for instance, the dump body) cannot be repaired but must
be replaced. We are given an order to do the job. Is our labor in this instance
nontaxable or taxable?

Further, if on this same job other damage is noted which can be repaired, how
would the labor for this portion be handled - in other words, would the labor
have to be kept separate or is the entire job to be considered repair. (In the
trucking industry this type of job is considered a repair job in its entirety.)

Answer: This is considered a repair of a motor vehicle, and the labor is not
taxable. If you bill lump-sum, you should pay tax on all materials used, no tax
due from your customer. Of course, if you separate, tax is due on the material
charges.

E. A customer brings in a truck which has been in use and requests replacement of
the equipment thereon (be if dump body, hoist, van, etc.). Is this labor nontaxable
or taxable?

Answer: If it is replacement of identical or substantially similar equipment, it is
considered a sale and installation. Answer to C would apply. If the replacement
increases load capacity or function, something along these lines, then it is
remodeling and the entire charge is subject to sales tax. If the customer is a dealer
who is going to sell it, a resale certificate may be accepted in lieu of tax.

F. A customer has a truck which was originally equipped for a specific use, for
example, a beverage truck. He now wants us to remove the beverage body and
in its place install a flat bed. How do we handle the labor in this instance?

Answer: This is considered remodeling and the entire charge is subject to sales tax.

G. Some customer, or a different customer, desires to purchase and have installed
the beverage body taken off the example in F. Is this labor nontaxable or taxable?
Would there be any difference in the handling of this situation if the truck was new
or used?

Answer: Some as F. If the customer is a dealer who will be selling the vehicle,
you may accept a resale certificate in lieu of the tax.

H. Customer merely desires the addition of lights, reflectors, mud flaps, mirrors,
tool boxes, and one or combination of items which we consider parts. Would the
labor in this job be taxable or nontaxable?

Answer: Some as C.

This opinion is based upon the facts you presented. If there are additional or
different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may write us,
call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy
Tax Administration Division