Industry Topics for Auto Repair Garages Español

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. Certain labor items are taxable. You must list the labor charges on a separate line on your invoices.

Nontaxable Labor:

Installation labor on used vehicles: replacing parts, installing sound systems.
Repair labor: rebuilding carburetors, replacing parts in transmissions, performing body work.
Maintenance service: tune-ups, oil changes, fluid flushes.
Services: towing, charging batteries, etc.

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/used part or a reconditioned/rebuilt part.

Sale of a New or Used Part with Core Charge

Example:

When you sell a new or used part and include a core charge, the core charge is taxable. This is true even if you refund the core charge to your customer. The charge is part of the payment for the original sale and the tax on the core charge is not refundable.
Selling price of new starter (with $7 core charge)	$54.00
Tax ($54 × 8.5%¹)	$4.59
Core charge (trade-in credit/refund)	- $7.00
Total	$51.59

Sale of Reconditioned or Rebuilt Part with Core Charge

Example:

When you sell a *reconditioned* or *rebuilt* part and include a core charge, that charge is taxable *unless* you refund it to your customer. When you refund the core charge, you should also refund any tax you collected on that charge. Tax applies to the "exchange price" only because the part is reconditioned.
Rebuilt alternator (with $9 core charge)	$120.00
Core charge credit/refund	$9.00
Taxable selling price	$111.00
Tax ($111 × 8.5%¹)	$9.44
Total	$120.44

Refundable Deposit for Lead-Acid Batteries

As of April 1, 2017, a refundable deposit is required when a consumer purchases a "new" replacement lead acid battery and does not simultaneously provide a used lead-acid battery to the dealer/retailer. A replacement lead-acid battery is a new lead-acid battery sold at retail in California and it replaces the original battery that came with the vehicle, watercraft, aircraft, or equipment. The refundable deposit is only charged on "new" lead acid batteries. The refundable deposit does not apply to refurbished or reconditioned batteries.

Retailers 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 for which the deposit was charged (HSC section 25215.2). This refundable deposit must be separately stated on the customer's invoice and is taxable similar to the core charges discussed in the heading above. The sales tax is not refunded when the deposit is refunded. The deposit is viewed as a trade-in allowance and is considered part of the payment for the sale.

For more information on the lead-acid battery fees, please 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 resale 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.

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 as long as the payment is made with a government issued credit card. You must retain the government purchase order or remittance advice in support of the non-taxable sale.

Sales of Auto Parts and Accessories Generally Do Not Qualify for Farm Equipment and Machinery Partial Exemption

In general, passenger vehicles and pickup trucks generally 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.

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, please see our Special Notice, Auto Part Retailers' Sales Generally Do Not Qualify for the Farm Equipment and Machinery Partial Exemption.

Invoicing Your Customer

Invoices should list separately charges for taxable sales of parts and charges for nontaxable labor.

To avoid errors, you should clearly identify amount allowed for trade-ins, core charges, and discounts. All invoices and documents should be kept to support all charges.

If you are registered as an automobile repair business you are required to separately list and subtotal all parts charges. To learn more about this, please contact the Bureau of Automotive Repair.

Supply items that you use, for example rags and tools, are taxable to you when you purchase them.

When you make these charges, whether they are taxable depends on if you are charging for taxable parts or nontaxable labor. The charge for supplies will be taxable if the other invoice items are 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/Generator 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, please see the CalRecycle page.

Recordkeeping

Businesses that are required to hold a seller's permit because they make taxable sales or purchases in California must keep books and records that are necessary to accurately determine their tax liability.

In most cases, that means 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.

Records should be maintained for at least four years. In the case of an audit, record should be maintained until the audit is completed.

Sales Suppression Software Programs and Devices

Beginning January 1, 2014, 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.