Does a customer owe Texas sales tax on tire retreading (or similarly, on repair of alternators, generators, radiators, and transmissions) when the repaired part goes back on the same vehicle versus into inventory?

Plain-English summary

The Texas Comptroller's Tax Policy Division sent this letter to clarify confusion about the taxability of tire retreading, after apparently seeing refund claims filed on behalf of customers for sales tax paid on retreading. The letter lays out a Tax Policy Committee clarification, and at the end notes the same policy applies to other motor vehicle components such as alternators, generators, radiators, and transmissions.

A retreader who buys used tire casings from a casing wholesaler, retreads them, and sells them is a manufacturer or processor — the total charge for the casing, retread, and labor is taxable to whoever buys the finished retreaded tire, though the retreader can buy the retread materials tax-free with a resale certificate and can also claim exemptions on electricity, natural gas, and machinery/equipment used to retread tires for sale.

The key distinction in this letter is what happens to a customer's own casings (or other components) after they're repaired:

• If the repaired casings/components go right back onto the same vehicle they came from, that is a non-taxable repair of a motor vehicle component. Retreading a quantity equal to or less than the number of tires the vehicle is designed to use (excluding spares) is presumed to be this kind of repair.
• If the repaired casings instead go into the customer's tire inventory rather than immediately back onto the originating vehicle, that is a taxable repair of tangible personal property, and the customer owes tax on the total retreading charge. Retreading a quantity that exceeds the vehicle's designed tire count (excluding spares) is presumed to be this kind of taxable repair.

Either presumption can be overcome with records — casing serial numbers, motor vehicle numbers, trip logs, repair logs, and any other records the Comptroller deems necessary — and the customer must give the retreader an exemption certificate matching the correct category. A customer cannot claim a refund on retreading tax when the retread tires go into inventory, and any customer who already got a refund from a retreader must repay it if they lack the records to rebut the "taxable" presumption.

What this means for you

Tire retreaders and shops that repair motor vehicle components

Whether you charge tax on a repair job for a customer's own casings (or alternators, generators, radiators, transmissions) depends on what the customer does with the repaired part and on what exemption certificate the customer gives you. Keep the customer's exemption certificate on file, and be aware the "same vehicle" vs. "inventory" distinction, along with the quantity-vs-vehicle-design-count presumption, drives the correct tax treatment.

Fleet operators and other customers who have their own tires or parts repaired

If your repaired casings or components go straight back onto the same vehicle, you can potentially claim the repair as a non-taxable motor vehicle component repair — but only if you maintain records (serial numbers, vehicle numbers, trip logs, repair logs) proving that. If you instead build up a tire (or parts) inventory from repaired items, expect to owe tax on the full repair charge, and don't file a refund claim for that inventory scenario.

Anyone who already received a sales tax refund on retreading

If you received a refund from a retreader and the retread tires went into your inventory rather than immediately back on the originating vehicle, this letter says you must repay that refund unless you have the records to rebut the presumption that the repair was taxable.

Common questions

Q: Is tire retreading always taxable in Texas?
A: The retreader's own sale of retreaded tires (bought as used casings, retreaded, and resold) is taxable as a manufactured product. For a customer's own casings, it depends on whether the repaired tires go back on the same vehicle (non-taxable component repair) or into inventory (taxable repair of tangible personal property).

Q: How do I prove a repair should be non-taxable?
A: Keep records such as casing serial numbers, motor vehicle numbers, trip logs, and repair logs, and give the retreader an exemption certificate stating the retreading is repair of a motor vehicle component.

Q: Does this letter only cover tires?
A: No. The letter states this same policy also applies to other motor vehicle components such as alternators, generators, radiators, and transmissions.

Q: Can a customer get a refund of sales tax paid on retreading?
A: Not when the retread tires are placed in the customer's tire inventory. A customer who already received such a refund must repay it to the retreader if they lack records to rebut the taxable presumption.

Q: Can another business rely on this letter?
A: This letter states its opinion is based on the facts presented and may change with additional or different facts; STAR letters generally may be relied on only by the taxpayer to whom they were issued.

Citations and references

No specific Texas statutes or administrative rules are cited by number in this letter; it references an enclosed Comptroller bulletin, "Repairing Motor Vehicle Components," which is not reproduced here.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9511138L

Original ruling text

November 21, 1995

Dear **:

In recent weeks, you may have submitted a refund claim on behalf of a client
(customer) for sales tax paid on tire retreading. We became aware of some of
the confusion concerning the taxation of tire retreading and presented the
issue to our Tax Policy Committee. The following is a clarification outlining
the taxation of tire retrending.

A retreader who acquires used tires ("stock casings") from a casing wholesaler,
retreads the casings and then sells them is a manufacturer or processor. The
total charge for the casing, retread and labor is taxable. The retreader may
give a resale certificate for the retread materials. As a processor of tangible
personal property for sale, the retreader's use of electricity and natural gas
to retread casings for sale is an exempt use. In this case, the retreader may
also claim exemption when buying machinery and equipment used to retread tires
for sale.

When a customer has casings retreaded that will be held in tire inventory
(i.e., not immediately returned to the vehicles from which they came), the
customer is having repairs made to tangible personal property rather than
repairs to component parts of a motor vehicle. In this situation, the customer
owes tax on the total charge for the retreading.

The retreading of a customer's casings in a quantity that exceeds the number of
tires that a vehicle is designed to operate with (excluding spare tires) is
presumed to be the repair of tangible personal property and the total charge is
taxable.

This presumption may be overcome if the customer maintains records to prove
that the tires were immediately put back on the vehicles from which the tires
were removed. The customer must maintain records such as casing serial numbers,
motor vehicle numbers, trip logs, repair logs and any other record the
Comptroller deems necessary to substantiate the claim. A customer with the
records to rebut this presumption may issue an exemption certificate to the
retreader claiming the retreading is the repair of a motor vehicle component.
The retreading labor would then be non-taxable repair of a motor vehicle. This
opinion is based on the facts presented. If there are additional or different
facts, the opinion may change.

When a retreader retreads tires that were taken from a motor vehicle that is
out of service and the repaired tire is put back on the same motor vehicle, the
retreader is repairing a component of a motor vehicle. The retreading of
casings in a quantity equal to or less than the number of tires a vehicle is
designed to operate with (excluding spare tires) is also presumed to be the
repair of a component of a motor vehicle. The customer must give the retreader
an exemption certificate claiming the retreading is the repair of a component
of a motor vehicle and maintain records such as casing serial numbers, motor
vehicle numbers, trip logs, repair logs and any other record the Comptroller
deems necessary to substantiate the claim.

A customer may not claim a refund of sales tax on tire retreading when the
retread tires are placed in the customer's tire inventory. Any customer who has
received a refund from a tire retreader must repay the refund to the retreader
if the customer does not have records to rebut the presumption mentioned above.

This policy also applies to other motor vehicle components such as alternators,
generators, radiators and transmissions. I have enclosed a Copy of our new
bulletin, "Repairing Motor Vehicle Components", which outlines this policy.

If you have any questions or need more information, you may call Eddie
Washington toll free at 1-800-531-5441, extension 3-4683. Eddie's Austin number
is 512/463-4683. From a telecommunication device for the deaf (TDD) only, call
1-800-248-4099. You may also write to Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Karey W. Barton
Manager, Tax Policy Division

cc: Eddie Washington