Tax Type
Retail Sales and Use Tax
Description
Sales Tax on Paint Used by Auto Refinishers
Topic
Insurance Issues
Taxpayers' Remedies
Date Issued
11-19-2004
November 19, 2004
Re: Policy Clarification: Retail Sales and Use Tax
Sales Tax on Paint Used by Auto Refinishers
Dear *****:
I have had several meetings with representatives of the ***** concerning a problem the auto body repair businesses in Virginia are having with the refusal of insurance companies to reimburse them for the sales and use tax they pay on paint they use providing their auto refinishing service. Apparently this situation has resulted from the misinterpretation of a 1986 letter issued by an employee of this Department.
FACTS
According to the 1986 letter, auto body shops should pay the sales tax on the price of the paint to its paint suppliers because the shop is deemed the user and consumer of the paint in rendering the nontaxable service of painting the vehicle. This letter goes on to state that the body shop should not bill or collect the sales tax from the customers or insurance companies on paint and supplies used in painting or refinishing motor vehicles. This letter was not an official ruling letter and was not published as a Public Document (PD). Regrettably, it has been circulated among insurers as an authoritative statement of the Department's position.
RULING
While the 1986 letter is technically correct, based on the interpretation by the ***** and the insurance industry, the letter has been cited by insurers in refusing the payment of the sales tax to auto body repairers and solidified the insurance industry in their incorrect long-standing position.
It has been the policy of the Department that auto refinishers and painters are the user and consumer of all paint and paint supplies used by them in the rendition of the nontaxable refinishing service [Title 23 Virginia Administrative Code (VAC) 10-210-1020; PD 85-197 (10/15/85); and PD 96-392 (12/30/96)]. As the user and consumer of paint and paint supplies in their service business, auto painters and refinishers are not permitted to charge the consumer or insurance companies separately for sales tax on these items. Nothing in the Department's 1986 letter or any other ruling or regulation would prevent auto painters and refinishers from being reimbursed for the sales and use taxes paid on paint and paint supplies. In fact, this is standard practice in the services industries for service providers to recoup their cost, including taxes, in their service price to the consumer.
The standardization of insurance claims practices could allow a simple solution. It is my understanding that the vast majority of insurers use electronic estimating systems to calculate repair cost when estimating auto damage losses. These electronic systems have the ability to set taxable parameters on all aspects of a repair estimate. This ability provides a solution by allowing insurers and repairers to simply "click the box" and turn "tax" button to yes on the paint material icon. That would generate the required sales tax on paint material and allow the auto body repairer to be properly reimbursed.
The Department of Taxation asks that your Division distribute this letter to those automotive insurance companies under your jurisdiction or issue directives of your own to the same effect. If you have any questions, please do not hesitate to contact me.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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Rulings of the Tax Commissioner