Tax Guide for Auto Repair Garages
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Sales and Use Taxes in General
In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt, or touched.
Use tax is a companion to California's sales tax and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under Purchases Subject to Use Tax on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.
Labor and Services
Generally, your charges for labor and services are not taxable. However, certain labor items are taxable. You must list the labor charges on a separate line on your invoices.
Nontaxable Labor items:
- Installation labor on used vehicles, such as replacing parts or installing sound systems.
- Repair labor, such as rebuilding carburetors, replacing parts in transmissions, or performing body work on a vehicle.
- Maintenance services, such as tune-ups, oil changes, or fluid flushes performed on a vehicle.
- Services, such as towing a vehicle or charging batteries on a vehicle.
Taxable Labor:
- Making or fabricating parts and modifying items or systems as part of a taxable sale.
- Installing parts on new vehicles.
Core Charges (Trade-in Allowances)
Core charges are trade-in allowances included in the price of a part, designed to encourage the return of old parts that can be reconditioned. When a core charge gets refunded, whether the tax will also be refunded depends on whether the sale of the part was a new or used part or a reconditioned or rebuilt part.
Sale of a New or Used Part with Core Charge
| Selling price of new starter (with $7 core charge) | $54.00 |
|---|---|
| Tax ($54 × 8.5%) | +$4.59 |
| Core charge (trade-in credit/refund) | −$7.00 |
| Total | $51.59 |
Notes
- Tax rate used for demonstration only. Please verify the rate in effect at your location on our website Find a Sales and Use Tax Rate
Sale of Reconditioned or Rebuilt Part with Core Charge
| Rebuilt alternator (with $9 core charge) | $120.00 |
|---|---|
| Core charge credit/refund | −$9.00 |
| Taxable selling price | $111.00 |
| Tax ($111 × 8.5%) | +$9.44 |
| Total | $120.44 |
Notes
- Tax rate used for demonstration only. Please verify the rate in effect at your location on our website Find a Sales and Use Tax Rate
Refundable Deposit for Lead-Acid Batteries
You are required to charge a refundable deposit when a consumer purchases a new replacement lead-acid battery and does not simultaneously provide a used lead-acid battery to you. A replacement lead-acid battery is a new lead-acid battery sold at retail in California that replaces the original battery that came with the vehicle, watercraft, aircraft, or equipment. You should charge the refundable deposit only on new lead-acid batteries. The refundable deposit does not apply to refurbished or reconditioned batteries.
If you are a retailer that charged a deposit on the purchase of a new lead-acid battery, you must refund the deposit if a used lead-acid battery of the same type is returned within 45 days from the date of the purchase of the new lead-acid battery (HSC section 25215.2). You must separately state this refundable deposit on the customer's invoice. The refundable deposit is taxable like the core charges discussed in the section above. However, when you refund the deposit, you should not refund the sales tax because the deposit is a trade-in allowance and is part of the payment for the sale.
| Selling price of new motor vehicle battery | $250.00 |
|---|---|
| Battery deposit (refundable) | −$30.00 |
| Taxable measure ($250.00 + $30.00) | $280.00 |
| Tax ($280.00 × 8.5%) | +$23.80 |
| Total paid at time of purchase | $303.80 |
| Battery deposit refund | ($30.00) |
| Total paid after deposit refund | $273.80 |
Notes
- Tax rate used for demonstration only. Please verify the rate in effect at your location on our website Find a Sales and Use Tax Rate
For more information on the lead-acid battery fees, see the Lead-Acid Battery Fees Guide.
Nontaxable Sales and Purchases of Parts
Certain sales and uses of parts are not taxable because they are covered by special exemptions.
You may use a resale certificate when you purchase parts that you will resell in the regular course of business.
You may make sales to other retailers without charging the tax provided they furnish you with a timely resale certificate. A certificate will be considered timely if you take it at any time before you bill the customer for the property, any time within your normal billing and payment cycle, or any time at or prior to delivery of the property to the customer.
If you sell parts that will be installed on a vehicle that is intended to be sold, you may accept a timely resale certificate and the sale is not taxable.
Sales to the U.S. government are not taxable if the payment is made with a government-issued credit card. You must keep the government purchase order or remittance advice in support of the nontaxable sale.
Sales of Auto Parts and Accessories Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption
In general, passenger vehicles and pickup trucks do not qualify as farm equipment and machinery. Therefore, your sales of auto parts and accessories for use on passenger vehicles generally do not qualify for the partial exemption discussed below.
Sales of farm equipment and machinery (including repair and replacement parts) for use by a qualified person and primarily used in producing and harvesting agricultural products are subject to a partial exemption from tax. However, for a vehicle to be considered farm equipment and machinery, it must be designated as an implement of husbandry in the California Vehicle Code and used exclusively in agricultural operations by a qualified person. Examples of implements of husbandry include farm tractors, bale wagons, and fertilizer rigs.
If you sell auto parts or accessories to a qualified person, you may accept a partial exemption certificate in good faith from the purchaser and claim the partial exemption on your sales and use tax return in the limited circumstance where you sell items to a qualified person for use exclusively in agricultural operations. However, you should not accept an exemption certificate from a purchaser if you have reason to believe, or knowledge that, the property does not qualify as farm equipment or machinery or will not be used in an exempt manner.
For more information, including a list of items that generally do not qualify for the farm equipment and machinery partial exemption, see Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.
Invoicing Your Customer
Invoices should separately list charges for sales of parts and charges for labor.
To avoid errors, you should clearly identify amounts allowed for trade-ins, core charges, and discounts. You should keep all invoices and documents to support all charges.
If you are registered as an automobile repair business, the Bureau of Automotive Repair (BAR) requires you to separately list and subtotal all parts and charges. To learn more about this, please contact BAR.
Supply items that you use, for example rags and tools, are taxable to you when you purchase them.
Generally, when you list charges separately, the charge for parts used in repair jobs are taxable and the charge for repair labor is not taxable. Some labor charges, such as labor charges to fabricate or modify a part, a vehicle, or some other tangible personal property, are taxable. Whether the charges are taxable depends on the type of sales transaction. For example, if the sale is for resale or is a sale in interstate or foreign commerce, then, these sales are not taxable.
Hazardous Waste Fees
Hazardous waste fees directly related to nontaxable service or repair charges are also nontaxable. Hazardous waste fees made in connection with taxable sales should also have sales tax added to them.
See the Getting Started section on how to register for a Hazardous Waste Generation and Handling Fee account.
Oil Recycling Fee
CalRecycle administers the Used Oil Recycling Program. Auto repair garages can register to become a Certified Collection Center and receive an incentive payment for used oil.
Once certified, you must accept used lubricating oil from the public at no charge. For more information, see the CalRecycle webpage.
Recordkeeping
We require businesses that hold a seller's permit to keep the books and records necessary to accurately determine their tax liability.
In most cases, the books and records are the normal books of account and the bills, invoices, and other documents that support them.
To make sure your records are adequate to support what you report, you should do the following:
- Make sure invoices or repair orders are complete and easy to read.
- File invoices and repair orders in the same sequence as entered in your books.
- Make sure your books and records separately list purchases of resale inventory and purchases of supplies and other items purchased for your own use.
You should keep records for at least four years. In the case of an audit, you should keep records until the audit is completed.
Sales Suppression Software Programs and Devices
It is a crime for anyone to knowingly sell, purchase, install, transfer, or possess software programs or devices that are used to hide or remove sales and to falsify records.
Using these devices gives an unfair competitive advantage over business owners who comply with the law and pay their fair share of taxes and fees. Violators could face up to three years in county jail, fines of up to $10,000, and will be required to pay all illegally withheld taxes, including penalties and interest.