103 Ky. Admin. Regs. 27:230
Current through Register Vol. 51, No. 6, December 1, 2024
Section 103 KAR 27:230 - Motor vehicle body shopsRELATES TO: KRS 139.010, 139.200, 139.210, 139.215, 139.240, 139.250, 139.260, 139.270, 139.280, 139.290, 139.310, 139.330, 139.470, 139.480
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation interprets the sales and use tax law as it applies to motor vehicle body shops.
Section 1. Definitions.(1) "Extended warranty services" is defined by KRS 139.010(13).(2) "Motor vehicle" is defined by KRS 138.450(5).(3) "Original warranty" means the guarantee to furnish, pursuant to the provisions of an original contract of sale and for a specified period of time, replacement parts, materials, or labor related to the property or service sold.(4) "Person" is defined by KRS 139.010(26).(5) "Retailer" is defined by KRS 139.010(35).Section 2. Motor Vehicle Body Shops as Retailers.(1) Motor vehicle body shops shall be classified as retailers of all tangible personal property sold (including repair parts, replacement parts, and materials) along with all service installation and repair charges associated with installing or applying the tangible personal property sold.(2) Motor vehicle body shops shall be classified as retailers of parts and materials used in body work that become a component part of a motor vehicle.(3) The list in this subsection shall serve as examples of parts and materials used in body work that become a component part of a motor vehicle:(h) Resins (epoxy, fiberglass, or polyester);(4) A motor vehicle body shop may purchase materials and parts that become component parts of a motor vehicle exempt for resale if the body shop issues a Resale Certificate, Form 51A105, a "Streamlined Sales and Use Tax Agreement-Certificate of Exemption," Form 51A260, or a "Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate-Multijurisdiction" to the seller at the time of purchase pursuant to KRS 139.270.Section 3. Taxable and Nontaxable Service and Installation Labor Performed by Motor Vehicle Body Shops Outside a Warranty Contract.(1) Charges for labor or services provided in installing or applying taxable repair parts sold shall be subject to sales and use tax. For example, a motor vehicle repair shop that sells and installs bumpers on an automobile shall collect and remit sales tax on the sale of the bumpers and any service, installation, or labor charge associated with the installation of the bumpers. Since the bumpers sold are subject to sales tax, the service, installation, or labor charges associated with the installation of the bumpers shall also be subject to sales and use tax.(2) Service, installation, or labor charges made to tangible personal property where there is no sale of taxable tangible personal property, digital property, or service shall not be subject to sales tax. For example, if a motor vehicle body shop provides a vehicle inspection with no sale of taxable property or services, the service, installation, or labor charge associated with the vehicle inspection shall not be subject to sales tax.(3) If tangible personal property, digital property, or services sold are not subject to sales and use tax, the charges for labor or services provided in installing or applying the property or services sold shall not be subject to sales and use tax. For example, if a motor vehicle body shop that sells and installs a front grill receives a fully completed Resale Certificate, Form 51A105, for the purchase of the front grill, the front grill is exempt as a sale for resale. The service, installation, or labor charge associated with the sale and installation of the front grill shall not be subject to sales and use tax.Section 4. Extended Warranty Services.(1)(a) Effective July 1, 2018, receipts from the sale of extended warranty services, including the sale of optional service, maintenance, and extended warranty contracts related to taxable tangible personal property, shall be subject to sales and use tax.(b) The person performing repair work under the provisions of an extended warranty service agreement or contract subject to tax sold on or after July 1, 2018 may purchase the repair parts used in fulfilling the contract as a sale for resale exempt from sales and use tax by presenting a resale certificate in accordance with the provisions of KRS 139.270.(c) Charges by a motor vehicle body shop to perform repair labor under the provisions of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.(d) Charges by a third party to perform repair work for the extended warranty service agreement provider under the provision of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.(e) Charges for repair work made outside the provisions of the extended warranty service agreement or contract, that include otherwise taxable repair parts and service and installation labor, shall be included in gross receipts subject to sales and use tax pursuant to KRS 139.010(15)(a)(6).(f) Deductibles charged as part of the provision of a taxable extended warranty service contract shall be subject to sales and use tax.(2)(a) Receipts from the sale of optional service, maintenance, or extended warranty contracts sold prior to July 1, 2018, not required as a part of the sale of taxable tangible personal property, shall not be subject to sales and use tax if the retailer separately itemized the charge for the sale of the service, maintenance, or extended warranty contract on the customer's invoice and in the retailer's books and records.(b) The person performing the repair work under a contract sold prior to July 1, 2018, shall report and pay the tax on the purchase price of all tangible personal property used in the fulfillment of the optional service, maintenance, or extended warranty contracts.Section 5. Original Warranty Services. (1) Receipts from the sale of original warranties shall be subject to sales and use tax.(2) The person performing repair work under the provisions of an original warranty may purchase the repair parts used in fulfilling the warranty exempt as a sale for resale exempt from sales and use tax by presenting a resale certificate in accordance with the provisions of KRS 139.270.(3) Charges by a motor vehicle body shop to perform repair labor under the provisions of an original warranty, if the provided repair parts are covered as part of the warranty, shall not be subject to sales and use tax.(4) Charges by a third party to perform repair work for the original warranty provider under the provision of an original warranty, if the provided repair parts are covered as part of the warranty, shall not be subject to sales and use tax.(5) Charges for repair work made outside the provisions of an original warranty, that include otherwise taxable repair parts and service and installation labor, shall be included in gross receipts subject to sales and use tax pursuant to KRS 139.010(15)(a)(6).(6) Deductibles charged as part of the provision of a taxable original warranty shall be subject to sales and use tax.Section 6. A Motor Vehicle Body Shop Classified as a Consumer When Performing Services Outside a Warranty Contract.(1) Pursuant to KRS 139.215, if the value of the component parts and materials sold by a motor vehicle body shop is less than ten percent (10%) of the total charges for the component parts, materials, and the labor or other services performed, and if no separate charge is made for the property, the motor vehicle body shop shall be classified as the consumer of the property and the parts and materials shall be subject to sales and use tax when purchased from their suppliers.(2) If the value of the component parts and materials sold by a motor vehicle body shop is less than ten percent (10%) of the total charges for the component parts, materials, and the labor or other services performed, and if no separate charge is made for the property, sales tax shall not be due on the sale from the motor vehicle body shop to the customer.(3) A motor vehicle body shop shall be classified as the consumer of items of tangible personal property used in the performance of body work that do not become a component part of the motor vehicle and shall pay sales and use tax on the items accordingly.(4) The list in this subsection shall serve as examples of items used in the performance of body work that do not become a component part of a motor vehicle: (a) Acetylene and other welding gases;(g) Polishing or buffing pads;(h) Removers (liquid or paste);(5) A motor vehicle body shop shall pay sales and use tax on the purchase of shop supplies because these supplies are consumed when furnishing the repair service.Section 6. Forms. The forms referenced herein may be inspected, copied, or obtained, subject to applicable copyright law, at: (1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; orSection 7.(1) This administrative regulation shall replace Revenue Circular 51C001-S12.(2) Revenue Circular 51C001-S12 is hereby rescinded and shall be null, void, and unenforceable.33 Ky.R. 2806; 3152; eff. 5-4-2007; TAm eff. 5-20-2009; 48 Ky.R. 495; eff. 2-1-2022.STATUTORY AUTHORITY: KRS 131.130(1)