Can a motor vehicle paint and body shop switch from separately billing parts (with tax collected from the customer) to a lump-sum price (paying tax itself on parts, collecting none from the customer)?

Plain-English summary

A paint and body shop had been using separated billing — collecting sales tax from customers on a separately stated parts charge, while buying its repair parts tax-free using a resale certificate. It wanted to switch to a lump-sum billing model instead: paying tax itself on its parts purchases, and billing customers one combined price with no tax collected from them. The shop asked whether that switch was acceptable.

The Comptroller confirmed it was. Rule 3.290(g)(1)-(2) makes labor to repair motor vehicles nontaxable. Under a lump-sum pricing model, the repair shop is not treated as a retailer of a taxable item — it can't issue a resale certificate for the parts and materials it uses, because it's the ultimate consumer of those consumable supplies, tools, equipment, and materials incorporated into the vehicle. That means the shop pays tax to its own suppliers at the time of purchase and does not collect any tax from the customer on the lump-sum charge — even when repairing a vehicle for a customer who would otherwise be tax-exempt. Separately, for any parts the shop had already bought tax-free with a resale certificate before switching models, it incurs a tax liability on those parts' purchase price once they're used in a lump-sum repair, and must report and remit that tax to the Comptroller under Rule 3.290(g)(3).

What this means for you

Auto repair and body shops choosing between billing models

You can choose either billing model, but the tax mechanics are opposite: separated billing means buying parts tax-free (resale certificate) and collecting tax from the customer on the parts charge; lump-sum billing means paying tax yourself on parts at purchase and collecting no tax from the customer at all, even on tax-exempt customers. If you switch models, remember to true up any resale-certificate-purchased parts still in inventory — you'll owe use tax on those once they go into a lump-sum job.

Accountants and tax professionals

Watch for shops that switch billing models mid-stream without adjusting how they treat existing parts inventory purchased under a resale certificate — Rule 3.290(g)(3) creates a use-tax liability the shop needs to self-report on that inventory.

Common questions

Q: Can a repair shop switch from separated billing to lump-sum billing?
A: Yes — both are acceptable, but the tax-collection mechanics are opposite.

Q: Under lump-sum billing, does the shop collect tax from the customer?
A: No — the shop pays tax itself on parts at purchase and collects nothing from the customer, even for otherwise tax-exempt customers.

Q: What happens to parts already bought tax-free under a resale certificate when a shop switches to lump-sum billing?
A: The shop owes tax on those parts' purchase price once used in a lump-sum repair, and must report/remit it under Rule 3.290(g)(3).

Q: Can another shop rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.290(g)(1)-(3) (motor vehicle repair labor and parts under lump-sum vs. separated billing)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9709920L

Original ruling text

September 17, 1997

To: **

Subject: Motor Vehicle Sales Tax Question

Dear **:

Thank you for your request for sales tax information.

Facts: A paint and body shop has been using separated billings to its
customers and collecting sales tax on the separately stated charge for parts.
The shop purchases repair parts using a resale certificate (in lieu of paying
tax). The shop now wants to start paying tax on its purchases and billing the
customers lump-sum, thus collecting no tax from the customer. You ask if this
is acceptable.

Response: This is an acceptable way of handling the tax. Rule 3.290 states
in sections (g)(1) and (2) that labor to repair motor vehicles is not taxable.
A person repairing a motor vehicle for a lump-sum price is not a retailer of a
taxable item and may not issue a resale certificate for parts or materials used
or consumed in the repair. Under a lump-sum contract, the repairman is the
ultimate consumer of consumable supplies, tools, equipment, and all materials
incorporated into the motor vehicle being repaired. The lump-sum repairman
must pay the tax to suppliers at the time of purchase. The repairman will not
collect tax from customers on the lump-sum charge or any portion of the charge.
Under this type of contract, the repairman will pay the tax on materials even
when the property is repaired for an exempt customer.

For materials originally purchased tax free by use of a resale certificate and
then used in a lump-sum repair, the repairman incurs a tax liability based upon
the purchase price of the materials and must report and remit the tax to the
comptroller [3.290(g)(3)].

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

If you have any questions, please do not hesitate to call me toll free at
1-800-531-5441. The direct number is 512/463-4663. The e-mail address is
.

Sincerely,

Joan Hale Williams
Tax Policy Division