Ruling 2017-4 - Sales and Use Taxes - Motor Vehicle Towing and Road Services Resale of Services

FACTS:

The Company is engaged in the short-term rental and long-term lease of motor vehicles. The Company hires towing companies to transport its motor vehicles between its rental lots and to transport motor vehicles from its rental lots to auction lots.  The Company also hires towing companies to transport its motor vehicles to and from body shops or repair shops, for which it may or may not charge its customers.  Additionally, the Company purchases roadside assistance services, such as providing fuel, changing tires, and unlocking vehicles, for which it also may or may not charge its customers.

ISSUES:

1. Are purchases of motor vehicle transportation services by the Company taxable as motor vehicle towing services when its vehicles are transported between its rental lots or from its rental lots to an auction lot?

2. Are purchases of motor vehicle transportation services by the Company taxable as motor vehicle towing services when its vehicles are transported to or from a body shop or repair shop?

3. Are purchases by the Company of roadside assistance services for its vehicles taxable?

RULINGS:

1. Purchases of motor vehicle transportation services by the Company are not taxable as motor vehicle towing services when its vehicles are transported between its rental lots or from its rental lots to an auction lot on automobile carrier trucks.  However, when the vehicles are transported between rental lots or to an auction lot by a wrecker or flatbed wrecker, the towing services are taxable.

2. Purchases of motor vehicle transportation services by the Company are taxable as motor vehicle towing services when its vehicles are transported by a wrecker or flatbed wrecker to or from a body shop or repair shop. However, these purchases by the Company may be excluded from tax as purchases for resale if the charges for such services are passed on to the Company’s customers and the Company collects sales tax from its customers on such services.

3. Purchases by the Company of roadside assistance services for its vehicles are taxable as road services. However, these purchases by the Company may be excluded from tax as purchases for resale if the charges for such services are passed on to the Company’s customers and the Company collects sales tax from its customers on such services.

DISCUSSION:

Connecticut imposes sales and use tax on all sales of tangible personal property unless the sale of such property is specifically exempt from tax.  Conn. Gen. Stat. § 12-408.  In contrast, Connecticut only imposes sales and use tax on sales of services that are specifically enumerated as taxable in Conn. Gen. Stat. § 12-407.  Motor vehicle towing and road services are specifically enumerated as being subject to tax in Conn. Gen. Stat. § 12-407(a)(37)(II). 

Towing and road services are described in Code 488410 of the North American Industry Classification System, United States Office of Management and Budget, 2017 edition (NAICS) as including emergency road services, tow truck services, and wrecker services.  Towing and road services exclude transportation of vehicles using automobile carrier trucks, which are described in NAICS Codes 484220 and 484230, each of which addresses Specialized Freight Trucking.

Thus, when the Company hires an automobile carrier truck to move its vehicles between its rental lots or from its rental lots to an auction lot, the purchase of these motor vehicle transportation services are not taxable because they are not motor vehicle towing services. However, if the Company engages a wrecker or flatbed wrecker to move its vehicles between its lots or to an auction lot, the charge is taxable because there is no exclusion from motor vehicle towing services for the transportation of inventory.[1]

In contrast, the transportation of vehicles by wrecker or flatbed wrecker to or from a repair shop or body shop is included in taxable motor vehicle towing services, even when such vehicles are owned by a motor vehicle dealership or a motor vehicle rental or leasing company.  Therefore, the Company’s purchase of these motor vehicle transportation services are taxable because they are motor vehicle towing services.  The Company may purchase motor vehicle towing services on resale if the Company charges the customer for the towing and collects tax on such charge.

As stated above, road services are specifically enumerated as taxable services in Conn. Gen. Stat. § 12-407(a)(37)(II). “Road services” are also known as roadside assistance services, and include, among other services, jump-starting cars, changing flat tires, and opening locked vehicles. Special Notice 2011(10), Sales and Use Tax Changes Affecting Motor Vehicle Dealers.  Therefore, the Company’s purchase of roadside assistance services are taxable as road services. The Company may purchase road services on resale if the Company charges the customer for these services and collects tax on such charge.