Is a lump-sum charge to repair a motor vehicle tire, such as fixing a flat or retreading a customer's own tire casing, subject to Texas sales tax?

Plain-English summary

The taxpayer wrote in asking about sales tax on retreading the casings of used tires. The Comptroller's office confirmed the taxpayer's own conclusion was correct: a lump-sum charge to repair a motor vehicle is not taxable, and this includes tire repairs such as "flat repairs" billed as a lump-sum charge.

The letter distinguishes two situations. First, when a customer brings in their own motor vehicle tire casing and the business retreads that casing, the business is repairing a motor vehicle. The labor to retread the customer's casing is not taxable, though the materials used in the job are subject to tax — because in this scenario the business is not a manufacturer, since it isn't holding the retread for sale. Under a lump-sum repair arrangement generally, the repair person is treated as the consumer of the supplies, materials, and equipment used, and owes tax on those items; no sales tax is collected on any portion of the lump-sum charge billed to the customer for the motor vehicle tire repair.

Second, if the business instead retreads casings that it owns itself and holds the finished retread tires for sale to the general public, the business is classified as a manufacturer, and the total charge for the retread is taxable. The letter quotes Tex. Tax Code Sec. 151.318, "Property Used in Manufacturing," which exempts tangible personal property that will become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale.

What this means for you

Tire and auto repair shops

If you repair a customer's own tire or retread a customer's own tire casing under a lump-sum charge, that charge is not taxable — this applies to flat repairs and to retreading labor alike. You, as the repair shop, are the consumer of the materials and supplies used and owe tax on those items yourself; you should not collect sales tax from the customer on the lump-sum repair charge.

Businesses that retread and sell tires

If instead you retread casings that your business owns and you hold the finished retreads for sale to the public, you are acting as a manufacturer under this letter, and the full charge for the retread tire is taxable — unlike the repair scenario above.

Accountants and tax professionals

This letter turns on ownership of the casing and the seller's role: repairing a customer-owned casing under a lump-sum charge is a nontaxable repair (with tax owed on the repairer's own materials), while retreading company-owned casings held for resale is taxable manufacturing activity under Sec. 151.318's ingredient/component framework.

Common questions

Q: Is a lump-sum charge to fix a flat tire taxable?
A: No. The letter states a lump-sum charge to repair a motor vehicle is not taxable, and specifically confirms that repairs to motor vehicle tires, such as "flat repairs," are not taxable under the terms of a lump-sum charge.

Q: If I retread a customer's own tire casing, do I owe tax on anything?
A: The labor to retread the customer's casing is not taxable, but the materials used in the retread are subject to tax. Under a lump-sum repair, you as the repair person are the consumer and owe tax on the supplies, materials, and equipment used.

Q: What if I retread tires my own business owns and then sell them?
A: In that case, per the letter, you are classified as a manufacturer, and the total charge for the retread is taxable.

Q: Why does ownership of the casing matter?
A: The letter explains that when you retread a customer's casing you are performing a repair (not manufacturing, since you're not holding the retread for sale). When you retread your own casings for sale to the public, you are manufacturing and processing tangible personal property for ultimate sale.

Citations and references

• Tex. Tax Code § 151.318, "Property Used in Manufacturing" — subsection (a)(1), exempting tangible personal property that will become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale, as quoted in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9502L1334G05

Original ruling text

February 20, 1995

Dear *****:

Thank you for your letter dated February 13, 1995, regarding sales tax as
it applies to retreating the casings of used tires.

Your conclusion is correct, a lump-sum charge to repair a motor vehicle
is not taxable. Also, repairs to (motor vehicle) tires, such as "flat
repairs" are not taxable under the terms of a lump-sum charge.

When a customer brings in a motor vehicle tire casing and you retread
his/her casing, you are repairing a motor vehicle. The labor to retread the
casing of a tire for a motor vehicle is not taxable. The materials are
subject to tax. (Here you are not a manufacturer because you are not holding
the retread for sale - see the pertinent statute inserted below.)

Under the terms of a lump-sum repair, the repair person is the consumer
and owes tax on all supplies, materials and equipment used to perform the
repair. Sales tax will not be collected on any portion of the lump-sum
charge to repair a motor vehicle tire.

On the other hand, if you were retreating casings owned by your business
and holding the retread tires for sale to the general public, the total
charge for the retread is taxable. Under these circumstances, you would be
classified as a manufacturer.

Sec. 151.318. Property Used in Manufacturing

(a) The following items are exempted from the taxes imposed by this chapter:

(1) tangible personal property that will become an ingredient or component
part of tangible personal property manufactured, processed, or fabricated for
ultimate sale; (emphasis added)

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

You may call me toll free at 1-800-531-5441, ext. 50330. The direct line is
512/475-0330. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9502909L