Was an extended service contract sold with a motor vehicle taxable in Texas?

Plain-English summary

The Texas Tax Administration Division said the described extended service and road-service contract was not part of the motor vehicle's taxable sale price and was not subject to motor vehicle tax.

The contract also was not subject to limited sales and use tax. The letter called this an exception to the then-general treatment of extended service contracts on most other tangible personal property.

Repair and replacement parts used under the contract remained taxable. When parts and labor were separately billed, the repairer collected tax from the customer on the parts. For a lump-sum repair charge, the repairer paid tax to the supplier or accrued use tax when removing parts from tax-free inventory.

What this means for you

Vehicle dealers and service-contract sellers

The contract itself was excluded under the historical rules, but that did not exempt parts used to perform covered repairs.

Auto repair businesses

The letter assigned historical parts-tax responsibility differently for separate and lump-sum billing. Verify current rules before invoicing or withdrawing inventory.

Common questions

Q: Was the extended service contract part of the vehicle tax base?

A: No.

Q: Was the contract subject to limited sales and use tax?

A: No, under the 1991 exception described.

Q: Were covered repair parts exempt?

A: No. The billing method determined who paid or collected the tax.

Citations and references

• The letter cited no statute or administrative rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9102L1072A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

JOHN SHARP
Comptroller February 11, 1991

Dear *:

Thank you for your letter of January 29, 1991, in which you
requested information regarding taxability of the NADW, ADM
& Road Service Policy. As I understand it, you are
referring to an extended service contract on motor vehicles
that you sell.

The contract is not part of the taxable sale price of the
motor vehicle, and is not subject to motor vehicle tax.

Nor is the contract subject to limited sales and use tax.
(This is an exception; extended service contracts on most
types of tangible personal property, other than motor
vehicles, are subject to limited sales and use tax).

Repair and replacement parts used in the repair or
maintenance of the vehicle under the extended service
contract are taxable. If the repairman bills separately for
parts and labor, he should collect tax from the customer on
the parts. If the repairman bills a lump-sum charge, he
should pay tax to his parts supplier at the time of
purchase, or accrue use tax on the parts when he removes
them from a tax-free inventory.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. if
you have further questions, feel free to write or call meat
1-800-531-5441, ext. 3-3889.

Sincerely,
John Christian
Tax Administration