For a race car owner: is a full sponsorship fee (sponsor gets exclusive use/decoration of the car for a year) taxable, is a partial sponsorship fee for just a decal taxable, is parking/storing other owners' race cars taxable, and must sales tax be charged on repair labor as well as parts?

Plain-English summary

This is a clarifying follow-up to an earlier September 1997 letter about race car sponsorship arrangements. It walks through five related scenarios for an off-road-vehicle (race car) owner:

1. Full sponsorship (exclusive use for a year). A sponsor pays a full sponsorship fee and gets exclusive use of the car for a year — decorating it however it wants and racing it anywhere with its own driver and pit crew. This is a taxable rental of the race car (Rule 3.294), not a motor vehicle rental, because these are off-road vehicles.

2. Decal-only partial sponsorship. A sponsor pays a partial fee just to have its decal/logo displayed on the owner's car for a period, with no other use rights and no vehicle modification. Displaying a decal alone is NOT a taxable service — the owner already paid tax on the decal at purchase.

3. Decal sponsorship plus onward lease. If the owner takes a decal-sponsorship fee AND then leases the same car to a third party at a discounted price (calling the arrangement a "partial sponsorship"), that IS a taxable rental/lease, with tax due on the discounted lease price actually charged.

4. Storage of other owners' race cars. Charging other race car owners to park/store their cars between races is NOT taxable — because race cars not designed for highway use are classified as off-road vehicles rather than motor vehicles, and while motor vehicle parking/storage is a taxable service, off-road vehicle storage isn't.

5. Repairing and overhauling race car motors. The owner asked whether tax applies only to materials/parts (not labor) on repair jobs — the answer is no: the ENTIRE charge to repair, remodel, maintain, or restore an off-road vehicle (race car) is taxable, labor included. The repairman CAN buy parts and materials that get incorporated into the repaired car tax-free by issuing a resale certificate to the supplier, but still owes tax on its own equipment and consumable materials used in performing the repair (Rules 3.88 and 3.292).

What this means for you

Race car owners running sponsorship programs

The line between taxable and nontaxable sponsorship comes down to what the sponsor actually gets: exclusive use/rental rights (taxable) versus a bare decal display with no other use rights (nontaxable). If you combine decal sponsorship with an onward lease to someone else, tax attaches to that lease.

Race car storage/parking operators

Storing off-road race cars (not licensed for public roads) is not a taxable service — unlike storing licensed motor vehicles, which IS taxable.

Race car repair shops

Don't assume you only owe tax on parts — the entire repair/remodel/maintenance/restoration charge, including labor, is taxable on an off-road vehicle. You can buy incorporated parts tax-free with a resale certificate, but you still owe tax on your own shop equipment and consumables.

Common questions

Q: Is a full sponsorship fee that gives someone exclusive use of my race car for a year taxable?
A: Yes — it's treated as a taxable rental of the race car.

Q: Is charging a sponsor just to display their decal on my car taxable?
A: No, as long as that's the only thing the sponsor is paying for and no other use or modification is involved.

Q: Is storing other people's race cars between races taxable?
A: No — off-road race cars are not classified as motor vehicles, so their storage isn't taxable (unlike storage of licensed motor vehicles).

Q: Do I only charge tax on parts when I repair a race car, or on labor too?
A: On both — the entire repair/remodel/maintenance/restoration charge is taxable, not just the parts.

Citations and references

• 34 Tex. Admin. Code Rule 3.294 (Rental and Lease of Tangible Personal Property)
• 34 Tex. Admin. Code Rule 3.88 (repair/remodeling — off-road/motor vehicles)
• 34 Tex. Admin. Code Rule 3.292 (repair, remodeling, maintenance, and restoration of tangible personal property)

Subject

Race Car — Remodeling/Repairing/Overhauling

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710719L

Original ruling text

October 23, 1997

Dear ***:

In September we wrote to you concerning sales tax and race care
rentals. In reviewing that letter, we felt that you might need
a clarification for future reference. Here is that letter with
clarifying language. Thank you for your patience.

Situation: An owner receives a full sponsorship fee in exchange
for which the "sponsor" gets the car for a year and may decorate
the car however the sponsor chooses. Under this agreement, the
sponsor may race the car anywhere with his driver and pit crew.

Question: Should sales tax be collected and remitted on the
sponsorship fee? (These cars are "off-road" vehicles and are
not licensed to be driven on public roads.)

Response: In this case, the "sponsorship" is a rental of a race
car (not a motor vehicle) and the fee is taxable. For more
information on rentals and leases, see Rule 3.294.

Situation: An owner receives a partial sponsorship fee for which
the sponsor (ABC Company) receives a decal. The decal generally
has the sponsor's company name or logo on it. The owner then
attaches the decal to one of its race cars for a period of time
covered by the sponsorship fee. There are no modifications to
the vehicle when a decal is applied or removed. The owner purchases
the decal from a supplier and pays the sales tax at the time of
purchase.

Question: Is tax due on the charge to the sponsor for displaying
the decal?

Response: No, displaying a decal on a race car is not a taxable
service.

Situation: An owner finds a sponsor who pays the owner to place
a decal on a race car. The owner then leases that car to a third
party at a discounted price. The lease to the third party is
called a partial sponsorship.

Question: Is this fee subject to sales tax?

Response: The partial sponsorship fee is a taxable rental or
lease, and tax is due on the discounted price.

Situation: The owner collects a fee from other race car owners
to park or store their cars when the cars are not being used in
a race.

Question: Is the charge for storage of the cars taxable?

Response: Race cars that are not designed for highway use are
classified as off-road vehicles, not motor vehicles. Although
motor vehicle parking and storage are taxable services, no tax
is due on the charge to store off-road vehicles.

Situation: The owner will be repairing and overhauling race
car motors for other race car owners.

Question: Is it correct that the owner must collect sales tax on
the charges for materials and parts and not the labor?

Response: No, the total charge to repair, remodel, maintain, or
restore off-road vehicles (race cars) is taxable. The materials
and parts that are incorporated into the repaired race cars may be
purchased tax free by issuing the parts supplier a properly
completed resale certificate. However, the repairman owes tax on
equipment and consumable materials used in the repair, remodeling,
or maintenance of off-road vehicles. For more information, see
Rules 3.88 and 3.292.

This opinion is based on the facts you submitted and current law.
Other facts though similar, may result in different answers.

My number is 1-800-531-5441, ext. 34614 if you have any questions.

Sincerely,

Adina Harrell
Tax Policy Division