The law that was established in the 1970s defined which materials were taxable, providing that "integral parts" are non-taxable. Integral parts are defined as a part that maintains a separate identity after use, and at the time, paint was included in this definition in the sense that it was purchased in small quantities for a specific vehicle. However, times have changed, and now, shops purchase paint in bulk, mixing the paint for each individual repair job. Because paint is no longer purchased for a specific vehicle, it is subjected to taxation at the wholesale purchase and again at the retail sale.
This double taxation has been imposed since 1999 when auditors found that jobbers were not taxing shops for the wholesale purchase. Jobbers were fined for their failure to tax upfront on paint and materials, so they began taxing shops for the purchase. Tony Ferraiolo, President of ABAC, argued that, "Because the mixed paint is charged to a specific vehicle's repair, it should be untaxed until it is resold for a specific car. House Bill 5655 was proposed in the 2015 Legislative session, but it didn't get anywhere since last year was about increasing state revenue, so we hope to revisit the proposal in the 2016 Legislative session."
Although this situation is not technically considered double taxation, because two separate entities pay the taxes, the product is still being taxed twice. Shops are taxed for the wholesale purchase, and consumers are taxed on the resale on their repair bill. ABAC argued that this is inconsistent with a reasonable regulatory interpretation and years of industry practice and that the wholesale purchase should be considered a "sale for resale."
Furthermore, the association feels that the current interpretation of the law does not pertain to paint purchased in bulk due to the evolution if industry practices, and since the totals are billed to and taxed on each specific repair job, House Bill 5655 is consistent with the regulation's original intent.
Ferraiolo explained, "We don't purchase paint that way anymore, and we want them to change the legislation to encompass the modern way that collision repair facilities do business."
A letter to ABAC from Thomas Valentino, CPA and Jeffrey Cheney, CPA concurs that the current law is outdated in regards to how modern collision repair facilities do business. In the 1970s, paint was purchased for specific cars, but because it is now mixed in the shop, it is being considered as a consumable item under the current interpretation of the law.
The letter explained, "When paint is mixed for a specific customer and applied to the body of the auto, it is not a consumable when the repair shop is charging the customer separately for that item on the invoice, which at times can be a large dollar amount. Keeping in line with what appears to be the intent of the statue, it reasons to be that this paint mixture should fall within the meaning of paint being purchased specific to a car and therefore be purchased on resale. We believe the original intent of the statute was to differentiate between consumable paint used by the auto repair shop versus paint used to finish an auto specifically for a customer. By meeting the other aspects of the statute, ie., separately stating the charge for customers, etc., we believe the auto repair business should be allowed to include its paint mixtures under this law, and the law should be rewritten to conform with current approaches to repairs without losing the intent of the law."
Their letter concluded, "It appears the Department of Revenue Services would be collecting tax twice on the same item. The purchase of the product should be for resale by the auto repair shop so that the final consumer pays a tax just one time. We believe this is what was originally intended by the law, but the method by which this particular item is purchased and applied has changed over time, and the law needs to address these current circumstances."