Tax Guide for Auto Repair Garages (Español)

We recognize that understanding tax issues related to your industry can be time-consuming and complicated, and want to help you get the information you need so that you can focus on starting and growing your business.

To help you better understand the tax obligations for your auto repair garage, we have created this guide.

If you also operate a gas station, please see our Gas Station Operators guide.



How to Use This Guide

Service Station

Each section of this guide contains information important to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance and other important information you need.

The Industry Topics section and the Specialty Repairs or Services section covers many topics in an at-a-glance format that can be expanded to provide more extensive information if you need it.

Lastly, the Resources section provides links to a wealth of information, including web-based seminars, forms and publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.



Service Station

If You Need Help

If at any time you need assistance with topics included in this guide - or with others we may have not included - feel free to contact us by telephone or email for assistance. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us by email.

Getting Started

If you own a business in California, and you expect to be making taxable sales, you must register with us for a seller's permit and file regular sales and use tax returns. You may be required to register for other licenses or accounts using our online registration service and file other returns. Listed below are other tax and fee programs that may be applicable to the auto repair industry.

Hazardous Waste Generator Fee Account

You must register with us for a Hazardous Waste Generator Fee Account if you generate five tons or more of hazardous waste – such as motor oil – within a calendar year. This includes recycled waste, treated wood waste, and waste sent outside California for disposal. The fee is determined by the total tonnage of waste generated per site.

California Tire Fee Account

If you sell new tires with your vehicle, you must register for a California Tire Fee Account to collect and pay the California Tire Fee on every new tire sold. New tire sales include separately sold tires, new tires included with the sale/lease/rental of new or used motor vehicles, recreational vehicles, construction equipment and farm equipment. For more information, see publication 91, California Tire Fee.

Underground Storage Tank Maintenance Fee Account

If you own a tank to store petroleum products, and it is even partially underground, you are required to register with us to pay an underground storage tank fee. In most cases, if you lease an underground storage tank, you are considered an operator and are not required to pay the fee. However, as an operator, you may have an agreement with the owner to report and pay the fee.

Registration

Online Registration — Register with us for your seller’s permit and apply for any of the licenses, permits, or accounts listed above.

Filing and Payments

Notice of Business Change – Keep your information current by using the links below and notifying us of any business changes.

Industry Topics

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 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 our customer. The charge is part of the payment for the original sale.

Example:

Selling price of new battery (with $7 core charge) $54.00
Tax ($54 × 8.5%) $4.59
Core charge (trade-in allowance) - $7.00
Total $51.59

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.

Example:

Rebuilt alternator (with $9 core charge) $120.00
Core charge credit $9.00
Taxable selling price $111.00
Tax ($111 × 8.5%) $9.44
Total $120.44

Note: Tax rate used for demonstration only, please verify the rate in effect at your location

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.

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 tab to register for this account, a license is required.

Oil Recycling Fee

CalRecycle administers the oil recycling program. Auto Repair Garages can register to become a Certified Collection Center

Once registered, you must accept used lubricating oil from the public at no charge during the hours that the center is open and provide upon request $0.40 per gallon. 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 will be 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.

Specialty Repairs or Services

Smog Checks and Certification

The smog check fee and the smog certificate fee are both nontaxable charges. The certificate fee amount is regulated by the Department of Consumer Affairs. Certificate fees must be separately stated on your invoices.

You cannot perform smog checks unless all of the following are met:

  • You are a licensed smog check station
  • You or one of your employees is a licensed smog inspector, and
  • You have a licensed smog mechanic on your premises, unless you are a "test only" facility.

Note for DMV licensed vehicle dealers: If you perform a smog check on a vehicle you plan to sell, the charge is taxable.

Licenses are issues by the Bureau of Automotive Repair. For more information, contact the Bureau of Automotive Repair

Insurance Work

The taxable amount of an insurance bid will be equal to the estimated parts cost of the bid. You should keep all bids with your records to support the cost of the parts.

If the actual price is less than the bid, you owe the full tax on the amount on the bid price. If the actual price is more than the bid, you owe full tax on the actual cost. The tax liability is based upon the bid estimate unless both of the following apply:

  • You inform the insurance company or customer by providing an amended invoice or other written notification.
  • The estimated sales price on the bid is less than your cost for the parts.

If the actual price is less than bid, you owe the full tax on the amount on the bid. If the actual price is more than bid, you owe full tax on the actual cost.

Auto Painting and Body Work

Parts and materials that remain on the vehicle are taxable to the customer while supplies and tools are taxable to you.

Parts and materials that remain on the vehicle being repaired are considered items for resale. Materials remaining on the vehicle include such things as putty, primer, paint, sealer, acrylic lacquer, and fisheye eliminator. You may purchase these items with a resale certificate and your charges to your customer will be taxable.

Supplies and tools that do not remain on the vehicle being repaired are taxable when you purchase them for use. This includes sandpaper, steel wool, masking tape, paint thinner, bodywork tools, etc. You may not use a resale certificate to purchase these items. For information on charging for supplies see Invoicing your customer.

Labor charges for painting new parts prior to installation are considered fabrication labor and are taxable. Labor charges for painting used parts or a new part after installing it on a used vehicle are considered repair labor and these charges are not taxable. If however, you charge a separate charge for the paint for the used or installed part, the paint charge by itself would be taxable.

Auto Glass Replacement

When installing auto glass, the charge for the glass is taxable. The installation labor is not taxable unless you are installing custom glass on a new vehicle.

Work to cut and grind glass to size, charges for measuring, cutting, and grinding are fabrication labor and are taxable.

Tire Sales and Recapping

Sales of new and used tires, including recapped or retreaded tires, are taxable. Tax is due on the selling price less any discounts allowed, before you deduct any trade-in allowances.

Sellers of new tires must register for and pay the California Tire Fee. See the Getting Started tab to register for this account, a license is required.

The fee of $1.75 per tire is not taxable. If a higher amount is charged, you owe tax on the excess charge.

When recapping tires, if you return the original tire to the customer, 75% of the charge is taxable. If you return a similar tire, not the original, the entire charge is taxable.

For more information about recapping, please see Regulation 1548, Retreading and Recapping Tires.

Warranty Work

Whether tax applies to parts for warranties depends on whether the warranty is mandatory or optional at the time the vehicle is purchased and whether the customer pays a deductible. The table below demonstrates when tax applies to warranty repair charges.

Warranty type terms¹ Application of tax to parts charges or cost Party Responsible for tax on parts
Mandatory Warranties
Manufacturer’s warranty
No customer deductible
Repair work done by dealer
Nontaxable resale of parts to manufacturer Customer: no payment
Manufacturer: charges for parts and labor
Manufacturer’s warranty
Customer deductible
Repair work done by dealer
Portion of deductible taxable.  Difference is nontaxable resale to manufacturer. (see formula below to compute taxable portion) Customer: deductible only
Manufacturer: total charges (including tax) less deductible paid by customer
Dealer’s or Repairer’s warranty
No customer deductible
Sale or use of repair parts not taxable. (considered part of original sale) Customer: no payment
Dealer’s or Repairer’s warranty
Customer deductible
Portion of deductible taxable. (see formula below) Customer: deductible only
Optional Warranties
Manufacturer’s warranty
No customer deductible
Repair work done by dealer
Taxable sale of parts to manufacturer.  Tax based on retail selling price of parts. Customer: no payment
Manufacturer: total charges (parts, labor, tax)
Manufacturer’s warranty
Customer deductible
Repair work done by dealer
Taxable sale of parts to manufacturer.  Tax based on retail selling price of parts. Customer: deductible only
Manufacturer: total charges (including tax due on portion of deductible) less deductible paid by customer
Dealer’s or Repairer’s warranty
No customer deductible
Repairer owes tax on the cost of parts. Customer: no payment
Dealer’s or Repairer’s warranty
Customer deductible
Portion of deductible taxable plus use cost on the parts used.  Customer: deductible only

¹ None of the warranty types described in this table include a provision requiring the customer to pay an amount for tax on the portion of the deductible related to the sale of parts. For more information and calculation examples, see publication 25.

To calculate the taxable portion of the deductible, use this formula:

(Charges for parts ÷ total charges) × deductible = taxable portion of deductible

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Publications

Regulations

Forms

  • BOE-230A, Resale Certificates for the Auto Body Repair and Painting Industry
  • Boe-230-F, California Resale Certificate Sales By Auto Auctions and Auto Dismantlers

Related Websites

Other Helpful Resources

  • Contact Us — A listing of BOE contacts for your questions and concerns.
  • Sign Up for BOE Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) — The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.