Supplies or Repairs

[SunTaxMan]

Trucking industry. Motor Oil, gear lube, trans fluid, anti-freeze, etc.

"Supplies" or "Repairs and Maintenance?"

I have a client who is calling them "Repairs" and claiming Sales Tax Exemption with the vendor (and getting it) because they are designated for a specific vehicle. I am thinking they are "Supplies" no matter which vehicle they are intended for. My thinking is that these are items that even though are "becoming part of the interstate vehicle," they are consumables, not a capital investment (because they will not CONTINUE TO BE a working part of the vehicle).

Comments?

Thanks,

[Margaret CPA in OH]

My vote is supplies. I can't imagine that this client also depreciates these items or adds them to the basis. And aren't repairs and maintenance expensed unless significantly extending the life of the asset anyway? I don't do trucks, though, so it will be interesting to read the responses!

[SunTaxMan]

I said,

"not a capital investment (because they will not CONTINUE TO BE a working part of the vehicle)."

Seems to be rather poor phrasing. Let's try, "not a 'repair part' affixed to the vehicle nor a capital investment (because they will not CONTINUE TO BE a working part of the vehicle)."

Thanks,

[Margaret CPA in OH]

I still vote with you that they should be supplies, even 'maintenance' supplies, if you choose. It is curious, though, that the vendor seems to agree with the client by allowing the sales tax exemption. Perhaps a chat with the vendor, not revealing the client, would be helpful as to why/how the vendor thinks this is correct. After all, the vendor must undergo occasional sales tax audits, right? Maybe there is a quirk in your state law for truck supplies. Maybe check with the Sales Tax Division at the state level?

I still vote supplies with your argument that they are consumables.

[GeneInAlabama]

I would definately think of them as maintenance. It is something that is needed to keep the truck operating. Oil and lubricants are not taxable for sales tax in Alabama regardless of how they are used, so it really wouldn't make any difference here which way it is counted. Come to think of it, I don't guess it would make any difference anyway. Any item that is deductible is deductible whether it includes sales tax or not.

[jainen]

>>they are designated for a specific vehicle<<

As I read the regs for Maryland (if that's what this is), it seems that repair LABOR is not subject to sales tax, though separately stated materials are taxable. So if the driver gets an "oil change," no sales tax for the included fluid. If he buys a case of oil to do it himself, add 6%.

[SunTaxMan]

I agree that MD law does not apply sales tax to "labor," but does to separately-stated parts. If the "Oil Change" were a "contract price," with no separation of labor and materials, then no sales tax at all.

But, in the situation of a 'contract price,' this DOES mean that the garage (vendor) would have/should have paid the sales tax when they bought the oil, filters, etc., since (1) they are the "final" stage in the flow of product from manufacturer to consumer where the oil, filters, etc., are specifically itemized and, (2) the oil, filters, etc., will NOT be separately identified on an invoice to the customer and, (3) those oil, filters, etc., items were not "purchased for resale" as separately identifiable.

[SunTaxMan]

I would definately think of them as maintenance. It is something that is needed to keep the truck operating. Oil and lubricants are not taxable for sales tax in Alabama regardless of how they are used, so it really wouldn't make any difference here which way it is counted. Come to think of it, I don't guess it would make any difference anyway. Any item that is deductible is deductible whether it includes sales tax or not.

I was not thinking in terms of whether or not it was a "deductible" expense, but rather tracking it for "cost" purposes per vehicle. Oil is supplies; i.e., buy 10 cases, use 4 this truck, 4 for that truck and 2 for "extras." If this method of considering oil as supplies is consistent, then "repair" costs for each vehicle are "treated equally" in the comparison of which vehicle is costing more to operate. Oil needs either to be IN the "maintenance" of EACH / EVERY / ALL vehicles, or in the "supplies" for the shop. Otherwise the comparison of vehicle maintenance costs is somewhat distorted.

[SaraEA]

I don't think the issue here is what's deductible and where. It's whether this client should be paying sales tax on his purchases of supplies, even if he likes to call them repairs. He is the end user, and most states deem that the responsible party for the sales tax. Otherwise, it never gets paid.

I've seen vendors trying to dupe the state out of their taxes by giving clients forms to fill out to pretend they're retailers. The only reason I can think of for vendors doing this is to gain a competitive edge because they don't charge sales tax so their total price is lower. Those schemes are bound to go up in flames when the state contacts the client looking for the sales tax they presumably collected when they presumably re-sold the merchandise. I'd warn your client that this may happen to him one day very soon.

[DevM]

I don't think the issue here is what's deductible and where. It's whether this client should be paying sales tax on his purchases of supplies, even if he likes to call them repairs. He is the end user, and most states deem that the responsible party for the sales tax. Otherwise, it never gets paid.

I've seen vendors trying to dupe the state out of their taxes by giving clients forms to fill out to pretend they're retailers. The only reason I can think of for vendors doing this is to gain a competitive edge because they don't charge sales tax so their total price is lower. Those schemes are bound to go up in flames when the state contacts the client looking for the sales tax they presumably collected when they presumably re-sold the merchandise. I'd warn your client that this may happen to him one day very soon.

I think if the client is the end user, I agree there is no sales tax but in most states it's called Use Tax (Sales & Use Tax).

Devm

[SunTaxMan]

I think if the client is the end user, I agree there is no sales tax but in most states it's called Use Tax (Sales & Use Tax).

Devm

I stand corrected. Thanks,