Sales Tax on Used Car Reconditioning?
 

I was thinking about Sales Tax on Used Car Reconditioning the other day and wondered whether this question is clear cut in most states or whether there's some gray area?

Here are the scenarios:

Scenario 1: Dealership buys a set of tires from ABC Tire Company and plans to install the tires on a customer's car that's in the Service Department getting other repairs performed.

Scenario 2: Dealership buys a set of tires from ABC Tire Company and plans to install the tires on the Dealership's Parts Delivery Truck.

Scenario 3: Dealership buys a set of tires from ABC Tire Company and plans to install the tires on a Used Car that's in the Service Department getting other repairs performed to prepare the car for retail sale.

Scenario 4: Dealership buys soap, waxes and detail supplies from XYZ Detail Company and plans to use the products on a Used Cars that are going to be reconditioned to prepare them for retail sale.

In my experience, Scenario 1 and Scenario 2 are pretty clear cut.

In Scenario 1, the Dealership wouldn't be expected to pay sales tax to ABC Tire Company because they'll be charging the retail customer sales tax on the tires when the customer pays their bill for the entire repair order.

In Scenario 2, the Dealership would be expected to pay sales tax to ABC Tire Company because the tires will essentially be consumed by the Dealership - they'll never be charged out on a Repair Order that will be subject to sales tax.

For me, Scenario 3 and Scenario 4 are less clear cut.

In Scenario 3, I'm guessing that the Dealership wouldn't be expected to pay sales tax to ABC Tire Company since the ultimate buyer of the used car will be paying sales tax on the car and the value of the car was enhanced with the new tires.

In Scenario 4, I'm guessing that the Dealership would be expected to pay sales tax to XYZ Detail Company because the products that were purchased cannot be tied to a specific vehicle.

Do my impressions fit with how sales tax is charged/collected in your state?

We handle each of the scenarios just as you have described them.

Parts you buy from a distributor should be tax exempt for your business if you resell the part or install it into something you resell including service. I don't service others cars, just the ones I sell, so sales tax is collected by whatever state the car will be titled in after it sells.

Thanks for the information. :)

When I was working in Washington State sales tax audits were pretty common so maybe that's why I'm concerned about the gray areas.