What’s New in 2013
Starting July 1, 2013, motor vehicle repair shops can buy paint and repair materials without paying sales or use tax. For more information, see “Handling Sales Tax on Repair Paint and Materials”
This fact sheet is specific to motor vehicle body and interior repairs. It will be helpful for the following types of businesses:
- Automotive dealers
- Body shops
- Independent installers
- Paint shops
A self-propelled vehicle that must be licensed for road use.
- Motor homes
Restores an item to its original condition so it can be used for its original purpose.
Repair materials become part of the vehicle or are consumed in providing the vehicle repair service. This does not include repair parts.
Supplies used to clean or maintain the shop, equipment, and tools.
Parts used to repair or service a vehicle are taxable to the customer. Parts are easily assigned to a repair or service and have a fixed or definite price.
You do not pay sales or use tax when you purchase these parts to use in your business. Instead, give your supplier a completed Form ST3, Certificate of Exemption. Specify the resale exemption.
- Door panels
- Rocker panels
This fact sheet covers:
- Taxable, nontaxable, and miscellaneous sales
- Repair paint and repair materials
- How to charge sales tax on invoices
- Warranties and service contracts
- Taxable and nontaxable purchases
- Use tax
For information on other repair services, see the following fact sheets:
- 131B, Motor Vehicle Mechanical Repair and Service
- 152A, Labor – Installation and Construction
- 152B, Labor – Repair for Businesses
- 152C, Labor Repairs for Individuals
Beginning July 1, 2013, repair paint and repair materials can be purchased exempt for resale if they:
- become part of the vehicle, or
- are consumed in providing the vehicle repair service.
Note: If you choose not to purchase repair materials exempt for resale, you can continue to pay tax on the purchase of materials and not charge tax to your customers (See Method).
Items used to provide repairs on multiple vehicles (such as machinery, tools, and equipment) are not repair materials and are taxable to the shop.
Examples of repair paint include:
- Body paint
- Paint thinner
- Clear coat
Primer Examples of repair materials include:
- Body filler/putty
- Razor blades
- Bolts and nuts
- Sanding discs
- Buffing pads
- Scuff pads
- Degreasing agents
- Grinding discs
- Striping tape
- Hydraulic jack oil
- Tack cloth
- Masking tape
- Welding rods
To purchase repair paint or repair materials exempt, give your supplier a completed Form ST3, Certificate of Exemption. Specify the resale exemption.
Handling Sales Tax on Repair Paint and Repair Materials
You may treat repair paint and repair materials using one of the following three methods. You must remain consistent in the method you choose.
Treat the repair paint and repair materials as taxable parts.
Separately state the price and quantity of the repair paint and repair materials on the invoice. See invoice example.
Use an industry-standard formula to calculate the price of taxable repair paint and materials.
Multiply the number of labor hours by a rate based on standard practices in your industry. The sales price of the repair paint and repair materials must equal or exceed the price you paid for them. State the repair paint and repair materials as a single line item on the invoice. See invoice example.
Pay tax on all purchases of materials (does not apply to parts).
Pay sales or use tax on your purchase of repair paint and repair materials. State the paint and materials as a single line item on the invoice and do not charge tax on that amount,
Motor Vehicle Upgrades and Enhancements
Labor to add or install something new or different to a vehicle is taxable. The parts being installed are also taxable to the customer. Examples include:
- Installing remote starters, navigation systems, and sunroofs
- Installing lighting graphics
- Installing bug deflectors and running boards
- Spraying bed liners
- Tinting windows
Charges to apply vinyl decals are taxable. If the customer brings a decal for you to apply, the charge to apply the decal is taxable. If you order or make a decal and apply it to a vehicle, the charges for the decal and the labor are both taxable.
The following services are taxable:
- Applying fabric protector
- Motor vehicle towing services
- Motor vehicle washing, waxing, and cleaning services, including coin-operated facilities
- Rustproofing and undercoating of vehicles
Motor vehicle repair labor
Auto body repair labor is not taxable when it is separately stated from repair parts on the invoice.
Labor charges to custom paint a vehicle are not taxable. But the paint and materials used are taxable. You must either charge sales tax to your customer, or pay sales or use tax when buying these materials.
Waste disposal fees
Charges for disposing of hazardous waste are not taxable when separately stated on the invoice. (Examples include battery fees, special charges for disposing of oil, antifreeze, tires, etc.)
Parts and repairs on employee vehicles are taxed the same as repairs for other customers.
If you discount the parts then you must charge tax on the reduced price of the parts. If you do not charge for the parts then you must pay sales or use tax on your cost of the parts. If you add or install something new or different at no charge then you must pay sales or use tax on your cost of the parts.
Sales to governments and nonprofits
Sales to federal agencies or other federal entities are exempt from tax. The federal agency must give you a purchase order, payment voucher, work order, or a completed FormST3, Certificate of Exemption.
The state of Minnesota uses a Direct Pay Permit. State agencies pay the Department of Revenue directly on most purchases. Purchase orders issued by Minnesota state agencies include the necessary direct pay information. Minnesota state agencies do not need to provide a completed FormST3, Certificate of Exemption.
Sales to certain local governments may be taxable. For more
information, see Fact Sheet 176, Local Governments – Cities,
Counties, and Townships. To claim exemption on qualifying
purchases, the local government must give you a completed Form ST3, Certificate of Exemption.
Certain purchases by nonprofit organizations are exempt from tax. To claim exemption, the nonprofit must give you a completed Form ST3, Certificate of Exemption.
Sales of Business Equipment
Sales tax may apply if you sell or lease equipment or other items used in your business. For more information, see Fact Sheet 132, Occasional Sales of Business Equipment and Goods.
Other Equipment Repair Labor (not motor vehicles)
For the period of July 1, 2013 -March 31, 2014, labor to repair machinery and equipment for business use is taxable.
- Lawn mowers/snow blowers
- Heavy operating
- Tractors machinery
Note: If the machinery or equipment is owned by a person and not used for a business activity, the repair labor is not taxable. You must use a reasonable method to identify if the customer is a business or an individual.
Warranties and Service Contracts
Manufacturer’s warranty or recall
Repair or replacement parts are not taxable when they are covered by a manufacturer’s warranty or recall.
Optional maintenance contracts
Optional maintenance contracts provide prepaid coverage for scheduled oil changes, tire rotation, etc. Optional maintenance contracts are taxable if they include any taxable items, unless the cost of those items is insignificant. The sales tax is due when the contract is sold, not when the maintenance is performed.
Used car warranty
Used car dealers in Minnesota must provide a warranty with the sale of certain used cars. If you sell such a vehicle and later make repairs under the warranty, no tax applies to the parts used in the repair.
Repair or replacement parts covered by a warranty or guarantee are not taxable when included in the purchase price of a rebuilt engine, transmission, etc.
Extended warranty contracts
Extended warranties to cover unexpected repair costs are not taxable. However, sales or use tax does apply to the parts used for contracted repairs. The following examples will tell you when tax is due and who pays it.
If the warranty states no cost to customer for parts then you must pay sales or use tax on your cost of the parts. If the warranty states customer is responsible for a percentage of parts and labor then you must charge the customer sales taxon the amount for parts only. If the warranty states customer pays a deductible for parts or labor then you must pay sales or use tax on your cost of the parts. The deductible payment is not taxable.
What purchases are taxable?
Tools and equipment
Purchases of tools and equipment for your business are taxable. (Examples include wrenches, power tools, paint booths, and lifting equipment.)
You must pay sales or use tax when you purchase shop supplies used to clean or maintain the shop, equipment, and tools. (Common examples include “floor dry” products, cleaning products, and rags – though cleaning products and rags may be exempt if they are used up while making repairs.)
Safety equipment and supplies
Items to provide safety or protection against injury are taxable. Examples include:
- Breathing masks
- Fire extinguishers
- Hearing protectors
- Safety glasses or goggles (nonprescription)
- Welding gloves or helmets
Laundry services are taxable. Examples include:
- Coats and coveralls
- Floor mats and rugs
- Work uniforms
For more information, see Fact Sheet 120, Laundry and Cleaning Services.
Promotional items, such as calendars, key chains, and pens are taxable. But clothing items, such as T-shirts and caps, are not taxable.
If you donate or give away taxable items, you owe sales or
use tax on your cost of the items, no matter who the recipient
is. For example, if you change the oil in a church van at no charge, you owe use tax on your cost of the filter and the oil used.
What purchases are not taxable?
Subcontracted repairs and services
If you subcontract with another business for repair work or services, do not pay sales or use tax on your purchase. Instead, give the subcontractor a completed Form ST3, Certificate of Exemption. Specify the resale exemption. But you must charge sales tax to your customer for any subcontracted labor, parts, or materials.
General clothing items are not taxable. Examples include:
- Cloth or latex gloves
- Coveralls and uniforms
- Disposable clothing
- Steel-toe shoes or boots
If you buy equipment shop supplies or other taxable items for your business and the seller does not charge Minnesota sales tax, you owe use tax on the cost of those items. If your business is in an area with a local tax, you also owe local use tax.
For more information see:
How to Report Sales and Use Tax
You can report state, local, and use taxes electronically at www.revenue.state.mn.us. If you do not have Internet access, you can file by phone at 1-800-570-3329.
For more information on how to file:
- Go to our website, www.revenue.state.mn.us
- Click “Sales and Use Tax” Under “I need to file Sales and Use Tax…”, click “Electronically” or “Phone”.
Treat the repair paint and repair materials as parts.
Separately state the price and quantity on the invoice.
Use an industry-standard formula to calculate the price of repair paint and materials.
Multiply the number of labor hours by a rate based on standard practices in your industry. The sales price of the paint and materials
must equal or exceed the price you paid for them. State the paint and materials as a single line item. For example:
Minnesota Statutes 297A.61
subd. 3, Sale and purchase
subd. 4, Retail sale
Minnesota Statutes 325F.662
Minnesota Rules 8130.0700, Producing, fabricating, printing, or processing of property furnished by consumer
Minnesota Rules 8130.5400, Clothing and wearing apparel
Revenue Notice 12-12, Warranty and Maintenance Contracts – Optional Contracts of Equipment
Other fact sheets you may need
Click here for more Minnesota Sales Tax Guides.
This fact sheet is intended to help you become more familiar with Minnesota tax laws and your rights and responsibilities under the laws. Nothing in this fact sheet supersedes, alters, or otherwise changes any provisions of the tax law, administrative rules, court decisions, or revenue notices.
The content of this and any related posts has been copied or adopted from the Minnesota Department of Revenue Sales Tax Fact Sheet #131A