Minnesota Sales Tax: Motor Vehicle – Mechanical Repair and Service

What’s New in 2013

Starting July 1, 2013, motor vehicle repair shops can buy repair materials without paying sales or use tax.

This fact sheet is specific to motor vehicle mechanical re­pairs and will be helpful for the following types of business­es:

  • Automotive dealers
  • Garages
  • Independent installers
  • Service stations

This fact sheet covers:

  • Taxable, nontaxable, and miscellaneous sales
  • Motor vehicle enhancements and upgrades
  • Repair materials and shop supplies
  • 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:

Definitions

Motor vehicle

A self-propelled vehicle that must be licensed for road use.

Examples include:

  • Cars
  • Semi-tractors
  • Pickups
  • Motor homes
  • Trucks
  • Trailers
  • Motorcycles
  • Van

Repair labor

Restores an item to its original condition so it can be used for its original purpose.

Shop supplies

Supplies used to clean or maintain the shop, equipment, and tool.

Taxable Sales

Parts

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.

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.

Examples include:

  • Alternator
  • Ignition coils
  • Belts
  • Oxygen sensor
  • Catalytic converters
  • Piston rings
  • Cylinder head gasket
  • Spark Plugs
  • Fuel pump
  • Tires

Repair labor

Restores an item to its original condition so it can be used for its original purpose.

Repair Materials

Beginning July 1, 2013 you may purchase certain repair materials exempt for resale and collect sales tax when selling them to a customer.

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 3).
Repair materials can be purchased exempt for resale if they:

  • become part of the vehicle, or
  • are consumed in providing the vehicle repair service.

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 materials include:

  • Battery water
  • Lubricants
  • Bolts and nuts
  • Motor oil
  • Brake fluid
  • Razor blades
  • Degreasing agents
  • Sanding discs
  • Diagnostic dyes
  • Solder
  • Grease
  • Solvents
  • Grinding discs
  • Welding rods

To purchase repair materials exempt, give your supplier a completed Form ST3, Certificate of Exemption. Specify the resale exemption.

Handling Sales Tax on Repair Materials

You may treat repair materials using one of the following three methods. You must remain consistent in the method you choose.

Method 1:

Treat the repair materials as taxable parts.

Separately state the price and quantity of the repair materials on the invoice. For example see Sample Invoices.

Method 2:

Use an industry-standard formula to calculate the taxable price of repair materials.

Multiply the number of labor hours by a rate based on standard practices in your industry. The sales price of the repair materials must equal or exceed the price you paid for them. State the repair materials as a single line item. For example see Sample Invoices.

Method 3:

Pay tax on all purchases of repair materials (does not apply to parts).

Pay sales or use tax on your purchase of repair materials. State the repair materials as a single line item on the invoice and do not charge tax on that amount.

Oil Changes

Prepaid oil changes are taxable at the time they are purchased, not when they are redeemed.

Tires

When a customer trades in an old tire for a recapped tire the entire charge is taxable, less an allowance for the trade-in. Tire siping is taxable. The federal excise tax on tires is subject to sales tax.

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:

  • Upgrading a sound system
  • Installing customized vehicle accessories; such as, adding
  • dual exhaust, adding a larger carburetor, etc.
  • Adding power locks, power windows, cruise control, or
  • window defrosters
  • Installing a remote car starter or theft alarms

Taxable Services

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

For more information, see Fact Sheet 113, Motor Vehicle
Towing, Washing, Rustproofing.

Nontaxable Sales

Motor vehicle repair labor

Auto body repair labor is not taxable when it is separately stated from repair parts on the invoice.

Tire recapping and retreading

Charges to recap or retread a tire are not taxable. These are considered vehicle repair, even if the new cap is of a differ­ent tread design (such as snow tread applied over summer tread).

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.)

Miscellaneous Sales

Employee sales

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 Form ST3, 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 Form ST3, 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.

Examples include:

  • Boats
  • Lawn mowers/snow blowers
  • Forklifts
  • Snowmobiles/ATV’s
  • Heavy operating
  • Tractors machinery

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.

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.

Rebuilt parts

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?

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, Certificateof Exemption. Specify the resale exemption. But you must charge sales tax to your customer for any subcontracted labor, parts, or materials.

Clothing

General clothing items are not taxable. Examples include:

  • Cloth or latex gloves
  • Coveralls and uniforms
  • Disposable clothing
  • Steel-toe shoes or boots

For more information, see Fact Sheet 105, Clothing and Wearing Apparel.

Use Tax

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:

  1. Go to our website, www.revenue.state.mn.us
  2. Click “Sales and Use Tax”
  3. Under “I need to file Sales and Use Tax…”, click “Electronically”or “Phone”

Sample Invoices

Method 1:

Treat the repair materials as parts.

Separately state the price and quantity on the invoice. For example:

Image 3

Method 2:

Use an industry-standard formula to calculate the price of repair materials.

Multiply the number of labor hours by a rate based on standard practices in your industry. The sales price of the materials must equal or exceed the price you paid for them. State the repair materials as a single line item. For example:

Image 3

References

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 #131B