Inequities Exist in Texas Franchise Laws for Independent Automotive Repairers

Posted 12/9/2010
By John Miller

Editor's Note: In late September, ASA issued a release to the press expressing ASA's concern about inequities in the Texas tax code. Currently in the Texas Franchise Tax Code, automotive repair and collision shops owned and operated by new or used car dealerships are taxed at half the rate used to tax independently owned automotive repair businesses doing identical work. The tax code classifies dealership sales as "retail" and allows their service and repair business to be included under that banner. Texas independent repairers are seeking similar treatment.

ASA is asking Texas repairers to contact their state legislators and urge them to help stop further audits of the automotive service industry until this issue is resolved.

To view the letter or to send a letter to your Texas legislator, visit ASA's legislative website at www.TakingTheHill.com. Click on the "View Current Alerts" button.

There are serious inequities in the current Texas Franchise Tax code and it focuses on your trusted neighborhood auto mechanic. The independently owned automotive repair and collision business in Texas is being denied equal treatment under the law.

Automotive repair and collision shops owned and operated by new or used car dealerships are taxed at half the rate used to tax the independently owned businesses doing identical work. This is justified in the tax code by classifying dealership sales as "retail" and allowing their service and repair business to be included under that banner. The tax rate for retail sales is half of that for other types of revenue.

This preferential treatment establishes an unfair business advantage to one category of business and denies another. It is an unfair and discriminatory application of the code.

The problem doesn't simply stop at the rate charged to independent shop owners - it also includes the method used to calculate the tax. Other skilled trades such as electricians, plumbers, carpenters and roofers are allowed to include the cost of labor used to produce their finished product as part of the "cost of goods sold." Independent automotive repair and collision businesses in Texas are not allowed to claim any labor of their skilled craftsmen and women as part of the cost to produce their product, a repaired vehicle. Independent repair shops are allowed only the cost of parts installed on the vehicle as cost of goods sold.

Establishing by law that a particular skilled trade is inherently of less value than another is discriminatory. The tens of thousands of automotive technicians, refinishers and body repair experts in Texas and the thousands of independent automotive business owners are being told by their legislature that their investment in education, training and tools is of no value.

In these difficult economic times, independent repair shops are struggling just like any other small business to meet their obligations, retain their employees and tool up for the new technology coming to the market.

If small business must be taxed, do it fairly with the same rules and rates for everyone.

John Miller is the owner of Freedom Automotive Service, a longtime ASA member-shop in Stafford, Texas. Miller also hosts The Car Counselor Show, a consumer-targeted radio program that airs Saturdays on Talk Radio 950-AM KRPC.