Do Auto Repair Shops Charge Tax on Labor?

Car repairs are stressful enough without getting hit by an unexpected auto repair tax. Each state in the U.S. sets its own rules on whether repair jobs are taxed, and some states that don't tax services may hit repair jobs with a tax on labor. Your state tax authorities should have the information online.

Sales Tax on Labor

American business used to center on manufacturing and the sale of goods. In the 21st century, the sale of services is a much larger part of the economy than it used to be. That makes it appealing to states to levy a sales tax on labor, whether applied to all services or some of them.

Even states that don't otherwise impose a tax on labor may deploy an auto repair tax. Unlike paying someone to do your bookkeeping or treat your sprained wrist, auto repair shops are working on tangible personal property – government-speak for possessions that may be "seen, weighed, measured or touched" but aren't real estate.

Buying tangible personal property generally triggers a sales tax. That includes replacement parts for a car. It's only a small step from there to also imposing a sales tax on the labor used to hook up the parts to the vehicle.

The Auto Repair Tax

States that impose an auto repair tax don't all impose it the same way. For example:

  • In New York State, auto repair shops charge you with sales tax on the entire repair -parts and labor. That includes the price of any oil or windshield wiper fluid your car needs. If the car has to be towed, the towing is taxable. 
  • In Florida, there's no sales tax on labor if the auto shop doesn't add or replace parts, add oil, etc. If the shop adds parts but doesn't charge you for them, the labor is taxable. 
  • Texas doesn't impose a sales tax on the labor for auto repair. If the shop charges a single price for parts and labor, it pays tax on the parts it purchased rather than taxing you. If labor and parts are separate, you pay tax on the parts. If they remodel the car, parts and labor are all taxable. 

Repairs Under Warranty

Things may be different if your car is under warranty. You may not pay anything for the repairs, but your state may still want to collect revenue in the form of sales tax.

  • In New York State, there's no auto repair tax if the work is covered by warranty. Repairs covered by insurance are taxable, but your insurer pays.
  • In Florida, you pay tax on your warranty as part of the sales tax when you buy your car. If you buy an extended warranty, that's subject to tax, too. 
  • Texas levies an auto repair tax on parts installed under an extended warranty, but no tax under a manufacturer's warranty. 
  • Washington State levies sales tax on warranties. If you take the car to someone other than the manufacturer or warranty issuer for repairs, you pay tax on parts and labor as well.

Other Taxes

Depending on where you live, a sales tax on labor may not be the only auto repair tax you have to deal with.

  • New York State charges a fee on new tires to handle the demands of recycling and disposal of old tires. 
  • Texas charges sales tax on labor and parts when you add accessories, such as a car stereo or an alarm system. 
  • North Carolina charges an auto repair tax but doesn't tax when having your car washed or vacuumed. 

The Shop's Purchases

Like other companies that charge consumers sales tax, auto shops don't have to pay sales tax on the parts they buy to resell. The state sales tax authority will issue them a resale certificate that tells suppliers not to collect tax on the shop's purchases.

Tools and equipment used to make the repairs, such as sandpaper or a wrench, are not exempt from sales tax. There's a good chance the auto shop will just factor that into the prices it charges.