Auto Body Shop Resale Certificate Guide: Paint, Parts, and Sales Tax Rules
Auto body and collision repair is a materials-heavy business. A single repair job might require $300 in paint, $150 in body filler and primers, and $500 or more in replacement parts. Multiply that by 15 to 30 jobs per month, and your materials spend adds up fast.
The good news: replacement parts and many materials that transfer to the customer's vehicle qualify for tax-free purchase with a resale certificate. The tricky part: auto body work sits at the intersection of product sales and service work, and the tax treatment varies by state.
Auto Body Shop
How Resale Certificates Apply to Auto Body Shops
When you install a new fender, bumper cover, or headlight assembly on a customer's vehicle, you are selling that part to the customer. The part transfers from your inventory to their vehicle. That is a resale transaction, and the parts you purchase for that purpose are exempt from sales tax with a valid resale certificate.
The same logic applies to paint and body materials that become part of the vehicle. Paint, primer, clear coat, and body filler are physically applied to and become part of the customer's car. In most states, these materials qualify for the resale exemption.
Here is where it gets complicated: labor, supplies consumed during the repair process, and materials that do not transfer to the vehicle are treated differently.
Apply for Your Resale Certificate
What You Can Buy Tax-Free
Tax-Exempt Purchases (Resale Items)
Materials and parts that transfer to or become part of the customer's vehicle:
- Replacement body panels (fenders, hoods, bumpers, quarter panels, doors)
- Replacement lights (headlights, taillights, fog lights, turn signals)
- Mirrors, handles, trim pieces, and emblems
- Windshields and auto glass
- Automotive paint (base coat, clear coat, single-stage paint)
- Primers and sealers applied to the vehicle
- Body filler (Bondo, fiberglass filler, spot putty) that becomes part of the repair
- Pinstriping and decals applied to the vehicle
- Rust inhibitor and undercoating applied to customer vehicles
- Hardware (bolts, clips, fasteners, rivets) that become part of the vehicle
- Welding rod and wire used to repair customer vehicle panels
What You CANNOT Buy Tax-Free
Items consumed during the repair process or used for business operations:
| Item | Why It Is Taxable |
|---|---|
| Sandpaper and sanding discs | Consumed during process, not transferred |
| Masking tape and paper | Removed after painting, not transferred |
| Paint booth filters | Shop equipment consumable |
| Tack cloths and prep solvent | Consumed during prep |
| Paint mixing cups and stir sticks | Disposed of after use |
| Spray guns and paint equipment | Shop tools |
| Frame straightening equipment | Business equipment |
| Welding machines | Business equipment |
| Air compressors | Business equipment |
| Shop towels and rags | Consumed |
| Safety equipment (respirators, gloves) | Personal use |
The Paint Question: Resale or Consumed?
This is one of the most debated questions in auto body sales tax. Is paint a material that becomes part of the vehicle (resale), or is it consumed during a service (taxable)?
Most states treat automotive paint as a resale item because the paint physically bonds to and becomes part of the customer's vehicle. The customer is paying for a painted car, and the paint is the tangible product they receive.
However, some states draw a distinction between "repair" painting (restoring a damaged panel) and "custom" painting (a full color change or custom design). In either case, the paint itself typically qualifies for tax-free purchase. The labor to apply it is treated separately.
Important: Overspray, paint left in the gun, and unused mixed paint are waste. Auditors understand that not 100% of the paint you buy ends up on a customer's vehicle. Reasonable waste is expected and acceptable.
Dollar Savings for Auto Body Shops
| Business Type | Monthly Material Spend | Annual Tax Savings (7%) |
|---|---|---|
| Small independent shop | $3,000 | $2,520 |
| Mid-size collision center | $8,000 | $6,720 |
| Multi-bay shop with paint booth | $15,000 | $12,600 |
| Large MSO location | $30,000+ | $25,200+ |
A mid-size collision center spending $8,000 per month on parts and materials saves $6,720 per year. That is real money, especially in an industry where insurance reimbursement rates keep margins tight.
Insurance Repair Jobs and Sales Tax
Most auto body work is paid for by insurance companies. This does not change the sales tax rules. The vehicle owner is still the customer, and you are still selling parts and materials to them (the insurance company is just paying on their behalf).
How it works in practice:
- You charge parts, materials, and labor on the repair estimate
- Sales tax is included in the estimate (on the taxable portions)
- The insurance company pays the total, including tax
- You remit the tax to your state
Some insurance-paid repairs include a customer-paid deductible. The tax treatment is the same regardless of who is paying.
State-Specific Notes
California
California treats auto body repair as a combination of product sales and service. Parts and materials that become part of the vehicle are sold tax-free to the shop (with a seller's permit) and taxed when sold to the customer. Labor is generally not taxable when separately stated. However, California requires auto body shops to separately state parts and labor on invoices.
Texas
Texas considers auto body repair a taxable service. Both parts and labor are taxable to the customer. However, you can still buy parts and materials tax-free with a resale certificate because you are reselling them as part of the repair. You just need to collect tax on the full invoice amount (parts plus labor) from the customer.
Michigan
Michigan does not tax services, but it does tax the parts and materials portion of auto body repairs. Parts purchased for installation on customer vehicles are exempt with a resale certificate. Labor charges are not taxable.
Pennsylvania
Pennsylvania exempts most vehicle repair labor from sales tax but taxes the parts. Auto body shops can buy replacement parts tax-free for resale but should charge tax on the parts portion of customer invoices.
Florida
Florida taxes auto body repair as a sale of tangible personal property (the repaired vehicle). Parts, paint, and materials qualify for tax-free purchase with a resale certificate. The total charge to the customer (parts and labor combined) is typically taxable.
The Parts Markup Question
Auto body shops commonly mark up parts before billing the customer or insurance company. A $200 fender purchased wholesale might be billed at $280. The sales tax applies to the $280 selling price, not your $200 cost. Your resale certificate lets you buy at $200 without paying tax. You collect tax on $280 from the customer.
This is standard retail markup. The resale certificate covers your wholesale purchase. Your tax obligation is on the retail sale.
Common Mistakes Auto Body Shops Make
Confusing Resale Items With Consumed Items
Sandpaper, masking tape, and tack cloths are consumed during the repair. They do not become part of the vehicle. Do not use your resale certificate for these items. Paint, filler, and parts do become part of the vehicle and do qualify.
Not Separating Parts and Labor
Many states require separate line items for parts and labor on invoices. Bundling everything into a single charge can trigger full taxation of the entire amount, including labor that might otherwise be exempt.
Missing Use Tax on Out-of-State Parts
If you order specialty parts from an out-of-state vendor who does not charge your state's sales tax, you owe use tax. This is common with OEM parts ordered from out-of-state dealerships or online parts suppliers.
Using the Certificate for Shop Equipment
A new paint booth, frame machine, or spray gun is business equipment. These are taxable purchases. Your resale certificate only covers items you resell to customers.
How to Get Started
Step 1: Apply for Your Resale Certificate
Apply through your state's department of revenue or use our application service. You will need your EIN, business address, and basic business information.
Step 2: Provide Certificates to Parts Suppliers
Give your resale certificate to your parts vendors (LKQ, PartsTrader, local dealerships, paint distributors like PPG, Sherwin-Williams Automotive, Axalta). They will keep it on file and remove sales tax from your invoices.
Step 3: Set Up Your Accounting Categories
Separate taxable purchases (shop supplies, equipment) from exempt purchases (parts, paint, materials for customer vehicles). This is critical for audit defense.
Step 4: Collect Sales Tax on Repairs
Charge the correct sales tax on the taxable portions of your customer invoices. File your returns and remit the tax to your state on schedule.
Apply for Your Resale Certificate