Does a shop that adds armor and modifies brakes/suspension on motor vehicles have to charge sales tax on the whole job, and can it buy the armor materials tax-free?

Subject

Motor Vehicle — Conversion/Outfitting/Remodeling/Customizing/Styling Shops

Plain-English summary

A shop wrote to the Comptroller describing its business: it modifies motor vehicles by adding armor and changing the brakes and suspension. Most of the armor and other materials come from out-of-state suppliers, while welding equipment and tools are bought in Texas. The letter didn't ask a specific question, so the Comptroller answered the taxability of the work generally.

The Comptroller ruled that armoring a vehicle and changing its brake and suspension system counts as remodeling of the vehicle. That makes the whole job taxable — the shop must collect sales tax from its customer on the total charge, including amounts billed separately for materials, skill, and labor. There's no way to carve out the "labor" portion as tax-free; it's all part of one taxable remodeling charge.

On the purchasing side, the shop gets favorable treatment for materials that actually become part of the vehicle: it can give its suppliers a resale certificate (instead of paying tax) for things like armor plate, armor glass, and springs, since those items are resold to the customer as part of the finished vehicle. But equipment and tools the shop uses to do the work — like its welding equipment — are its own business overhead, not resold to the customer, so tax is due when the shop buys those.

Finally, the ruling addresses a special case: if the shop is customizing vehicles for a dealer who will then sell the modified vehicles to the public, the dealer can give the shop a resale certificate in lieu of paying tax on the customization charge, because the dealer is going to collect tax when it resells the finished vehicle.

What this means for you

Vehicle customization, armoring, and remodeling shops

If your work changes the vehicle itself — adding armor, altering brakes or suspension, or similar structural modification — expect to charge your customer sales tax on the entire invoice, not just the parts. Separately stating labor and materials on the invoice doesn't make the labor tax-exempt.

Purchasing materials vs. equipment

Keep a clear line between (1) materials that get physically incorporated into the customer's vehicle, which you can buy tax-free with a resale certificate, and (2) tools and equipment you keep and use in your own shop, which are taxable purchases for you.

Shops that work for dealers

If a licensed dealer sends you vehicles to customize before resale, you can accept a resale certificate from the dealer instead of charging tax, since the dealer will collect tax when it sells the finished vehicle to the end customer.

Common questions

Q: Do I have to charge tax on labor if I bill it separately from parts?
A: No — under this ruling, remodeling work is taxed on the total charge, including separately stated labor and materials. Breaking out the invoice doesn't exempt the labor portion.

Q: Can I buy the armor plate and glass tax-free?
A: Yes, if those materials are incorporated into the customer's vehicle, you can issue a resale certificate to your supplier instead of paying tax, since you're reselling those materials as part of the remodeled vehicle.

Q: What about the welding equipment and tools I use?
A: Those are taxable. You're not reselling your tools to the customer, so you owe tax when you purchase them.

Q: What if I'm modifying vehicles for a dealer who will resell them?
A: You may accept a resale certificate from the dealer instead of charging tax on your customization work, since the dealer's later sale of the vehicle is where the tax gets collected.

Q: Does this ruling apply to my business specifically?
A: Not directly — Texas letter rulings on STAR can only be relied on by the taxpayer they were issued to, and this one is limited to the facts described (armor plus brake/suspension modification). Different facts could lead to a different answer.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1185E13

Original ruling text

August 4, 1992

Dear **:

According to your letter, you modify motor vehicles by applying armor and
modifying the brakes and suspension. Most of the materials used in the
modifications come from out-of-state suppliers. You purchase your welding
equipment and the tools you use in Texas. You did not ask a specific question,
but I presume you are interested in the taxability of your modification work.

The modification of a motor vehicle to add armor and to change the brake and
suspension systems is remodeling. You should collect tax from your customer on
the total charge, including separately stated charges for materials, skill, and
labor.

You may issue a resale certificate for materials such as the armor plate, armor
glass, and springs that are incorporated into the motor vehicle. You are
required to pay tax at the time of purchase on equipment and tools used in your
work.

You may accept a resale certificate in lieu of tax if you customize the motor
vehicles for a dealer who in turn will sell the modified vehicles.

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

You may call me toll free at 1-800-252-5555, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division