Do Auto Repair Shops Have To Register For Tire Tax

In the October issue of the Virginia Automotive Report, Terry Westhafer of Central Tire Corp. in Verona told of his personal business relationship of a recent Sales Tax Inspect. Since then, we have spoken to Marker Hornsby of Hornsby Tire Co. in Newport News, who also experienced a contempo audit. Both Terry and Marking have contributed to this article, and it became clear in speaking with them and other VAA members, that there is a slap-up bargain of confusion within our industry on this subject.

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The answer to "Is it Taxable or Non" is non ever quite as clear as you might recall, and equally Terry and Mark were told past their auditors, you may not notice out until you are audit-ed. While the process of their audits was very time consuming, both Terry and Marker said the auditors they dealt with were reason-able and fair, and willing to heed to their arguments to support their case. Realizing sales tax is a pass through to the consumer, the auditors realized most concern owners want to do the right matter, and they expressed a desire to aid brainwash with this process. Unfortunately, this education can come up at a toll if you are not treating these items correctly. Every bit you read in Terry's October article, he won some of his challenges, and lost some too. Ditto that with Marking's audit. Sales Tax

To help members' accept some of the guesswork out of this, we took examples from Terry and Mark'due south audit, and tried to come upwards with a list of items frequently used in our manufacture, and what nosotros believe the ruling to exist. We took this list to our contacts within the Virginia Department of Taxation and asked their opinion, and some cases they accept provided specific written rulings from the Commissioner.

As part of this commodity, we are including our list of items, is it taxable or not, which can vary depending on circumstances, and some notes on why the ruling is what it is.

Think of 4 areas:

i. Tangible property (parts, tires, etc.) y'all buy and resell which you are exempt when buying, and is revenue enhancement-able to your customer.

2. Labor which has always been exempt in Virginia.

3. Service yous provide – may or may not be taxable.

4. Fees you charge your customer – may or may not be taxable.

Where the lines go somewhat blurry is in the interpretation of what is labor vs. service vs. fees.

Here are some examples: You install ball joints on a customer's vehicle; on the parts side, the ball joints, which you tax; on the labor side what you lot charge to install, which is non taxable– pretty articulate.

How virtually you sell a customer iv new tires, remainder them and perform an alignment. Y'all accuse the Country Recycle fee of $.l per tire which is non taxable (this used to be known as the tire tax). You also accuse a waste tire disposal fee to cover your costs of disposing of the customer's old tires– is this labor and not taxable? No, this disposal fee is just that, a fee, and non labor. Because it occurred equally role of an invoice and in connection with the auction of a new tangible product (the tires), the disposal fee is taxable.

The state uses an analogy that might aid in understanding their rulings: If y'all buy a new adjust, and take a divide accuse to alter the suit, the alterations accuse is taxable– seems like labor, only they dominion information technology as a fee which is taxable because it was incurred with the sale of tangible personal property (the accommodate).

Hither are a few other items that have come up upward in audits:

Road Service– it's non labor, and if you go out and simply mountain a client's spare, information technology's not taxable. Still, if a new product is installed at the same time equally the service telephone call (tire, tube), the road service call is taxable.
Apartment Repairs– this is a service you provide, and most itemize the charge as all labor and practise not tax information technology. However, what about the items y'all apply as part of this service, the patch/plug, cement and solution? The definition states y'all should pay tax on these items when y'all purchase them.
Store Supplies– the commissioner'due south written ruling states, similar to the flat repair example, you would pay tax on the items you consider shop supplies– solvents, chemicals, nuts/bolts, etc. when you purchase them. So if you charge your customer a line item for store supplies, that particular to your client would not be taxable. Many may be treating this but the opposite; the taxation department has said at that place is defoliation over exactly what is a shop supply because it can mean different things to unlike people, and that is why the department has ruled this way.
Wheel Balancing– most shops don't catalog out wheel weights on the invoice– it'southward just one line particular accuse for the entire amount, and most list it on the labor side. If you pay sales tax on the wheel weights when you buy them, then this is fine. If you practice not, and are audited, they will rule the entire amount of the charge per wheel should be taxable. Either pay for them when you purchase them, or break downward the invoice to include the weights you used as parts (taxable) and the labor to rest the wheel (not taxable).
Diagnostic Fee– if all y'all do is perform is a diagnosis on the invoice, this charge is not taxable. However if the effect of your exam leads to the sale of a new role on the invoice (sensor, etc.) the diagnostic fee you accuse is taxable. This is one we may question and request a ruling from the tax commissioner, every bit it can be argued this is labor. For now, charge tax on it if a part is sold as a effect of the diagnosis.
Sublet charges– if you accept your customer'southward car to a specialty shop and have piece of work performed, include a marking upwardly, and and then rebill it to your customer, you need to break downwardly the parts and labor separately, and accuse tax on the parts. Some just have the total toll of the sublet, marker it up, and list the new total on the customer'southward invoice. If you practice this, and don't break it down, the tax section volition assume the full charge is taxable.
Our promise is this volition help all VAA members, both dealers and suppliers, in better understanding what y'all should be doing when it comes to applying sales tax. You may non concord with every ruling on this list, but this is how an auditor is going to make judgment.

Hither are a couple of bottom line takeaways: with most of the items, someone is going to pay the tax– either you lot when you buy it from your supplier, or your customer when y'all sell it. And your tax exemption is a resale exemption; unless you can prove it is a resale item, you need to pay tax on it at purchase.

Review this list with your employees, so that they will use sales taxation correctly, and too be able to explain the reason to a customer who may challenge you. While we feel this list is as authentic as we tin can possibly get it, if you take questions or are unsure on items you sell, take this list to your auditor for his or her opinion. Further questions or an item not covered here, permit u.s. know, and nosotros can ask for an opinion from our sources at the revenue enhancement department.