How did Texas treat repair, painting, parts, tires, and installation costs for heavy equipment and motor vehicles prepared for auction resale?

Plain-English summary

The Texas Comptroller's answers depended on the equipment or vehicle actually being sold at public auction. If a consignor bought back or reclaimed the property, the auctioneer had to charge tax on its total repair, remodeling, restoration, or maintenance cost for tangible property, or on the repair materials used for a motor vehicle.

For heavy equipment consigned for auction or bought solely for resale, the auctioneer could give vendors resale certificates for lump-sum painting, mechanical labor, supplied parts, tires, batteries, and installation.

For motor vehicles consigned for auction or bought solely for resale, painting and mechanical-company charges were not taxable. Parts, tires, and batteries could be bought with resale certificates, and repair and installation labor was not taxable.

The auctioneer also could take credit on a later sales-tax return for Texas tax paid on its own property held for resale, subject to the four-year period stated in the letter. The Comptroller did not decide whether tax could be refunded to consignors because it first needed invoices showing how labor and material tax had been passed through.

What this means for you

The property's classification and final disposition mattered. Heavy equipment and motor vehicles received different service treatment, and a failed auction or consignor reclamation changed the result from the resale assumptions used in the answers.

Common questions

Did the answers apply if the property was not sold at public auction? No. The letter expressly conditioned them on an actual public sale.

Could heavy-equipment preparation costs be covered by resale certificates? Yes, for the listed categories under the public-sale facts.

Was motor-vehicle repair or installation labor taxable? No.

Could the auctioneer recover tax paid on its own resale property? The letter allowed a credit on a later return within four years.

Did the letter approve refunds to consignors? No. That issue remained open pending invoices and other documents.

Citations and references

• Comptroller Rule 3.292(b) — cited for motor-vehicle repair and installation labor.
• Comptroller Rule 3.338 — cited for credit on tax paid for the auctioneer's own property held for resale.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8703L0807E10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 19, 1987

Dear ****:

Thank you for your recent letter regarding functions performed on
tangible personal property and motor vehicles. Each response is predicated on
the property actually being sold at public sale. If the consignor buys back or
reclaims his goods, you must charge him tax on your total cost of repairs,
remodeling, restoration or maintenance of tangible property or on the materials
used to perform these functions on a motor vehicle.

With this in mind, your facts are restated with response below.

Question: Do we pay sales tax on parts, labor or both on equipment in the
following situations:

1. The equipment is heavy equipment (backhoes, loaders, etc.). We have a
   contract with several different consignors to sell their equipment in an
   auction. They have specified that they want their equipment repaired, cleaned
   and painted before the auction.We contact all vendors in regards to the repairs
   and pay for all repairs. We reimburse ourselves for the cost of these repairs
   from the proceeds of the auction sale. During the auction we collect and remit
   to the state the sales tax on all equipment sold.

A. The painter gives in a lump-sum price for each piece. (Taxable or
nontaxable)?

B. The mechanical company charges us so much per hour for labor.
(Taxable or nontaxable)?

C. Parts are purchased by us and supplied to the mechanical repair
company or welder to use for their repairs. (Taxable or nontaxable)?

D. Tires, batteries are purchased. (Taxable or nontaxable)? Labor to
install tires and batteries. (Taxable or nontaxable)?

Response: In each case you may give the vendor a resale certificate in
lieu of tax.

2. We purchase the equipment for the sole purpose of reselling the
   equipment, sell the equipment at our auction and collect and remit sales tax on
   the equipment sold.

A. The painter gives us a lump-sum price for each piece. (Taxable or
nontaxable)?

B. The mechanical company charges us so much per hour for labor.
(Taxable or nontaxable)?

C. Parts are purchased by us and supplied to the mechanical repair
company or welder to use for their repairs. (Taxable or nontaxable)?

D. Tires, batteries are purchased. (Taxable or nontaxable)? Labor to
install tires and batteries. (Taxableor nontaxable)?

Response: Same as for number one.

3. The item is a motor vehicle. We have a contract with several
   different consignors to sell their motor vehicles in an auction. They have
   specified that they want these vehicles repaired, cleaned and painted before
   the auction. We contact all vendors in regards to the repairs and pay for all
   repairs. We reimburse ourselves for the cost of these repairs from the
   proceeds of the auction sale.

A. The painter gives us a lump-sum price for each piece. (Taxable or
nontaxable)?

B. The mechanical company charges us so much per hour for labor.
(Taxable or nontaxable)?

C. Parts are purchased by us and supplied to the mechanical repair
company or welder to use for their repairs. (Taxable or nontaxable)?

D. Tires, batteries are purchased. (Taxable or nontaxable)? Labor to
install tires and batteries. (Taxable or nontaxable)?

Response: The charges to you under A & B are not taxable.You may give
the vendor a resale certificate for items covered under C & D. The repair
labor and installation labor are not taxable. Please refer to Rule 3.292(b)
attached.

4. We purchased a motor vehicle for the sole purpose of reselling the
   vehicle, and sell the vehicle at our auction.

A. The painter gives us a lump-sum price for each piece. (Taxable or
nontaxable)?

B. The mechanical company charges us so much per hour for labor.
(Taxable or nontaxable)?

C. Parts are purchased by us and supplied to the mechanical repair
company or welder to use for their repairs. (Taxable or nontaxable)?

D. Tires, batteries are purchased. (Taxable or nontaxable)? Labor to
install tires and batteries. (Taxableor nontaxable)?

Response: Same as for three above.

As we discussed, you may recoup Texas tax that you paid on your own
property which was being held for resale by taking credit on a subsequent sales
tax return. Please refer to Rule 3.338 attached. The statute of limitations
for taking credit is four years from the date the taxable repair or item was
purchased.

Before I could speak to the possibility of your refunding tax to your
consignors, I need to know how the consignors are billed for the tax on labor
and materials. Could you please provide me with representative samples of
invoices and any other relevant documents showing how the tax is passed through
to the customer.

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

If you have any questions or need more information, please call me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Al Van Allen
Tax Policy Section
Tax Administration Division