Working at the Car Wash, Yeah – Wacky Tax Wednesday

Updated 10.31.2017: North Carolina taxes car wash services provided by a business as of Jan. 1, 2017. However, self-service car washes remain exempt. See the North Carolina Department of Revenue for more details.

Listen while you read: Car Wash

My 10-year old son recently announced that his best friend (also 10) is getting rich washing cars this summer. “He gets $5 an hour and it takes hours to clean one car!” he enthused. Always on the lookout for instructional opportunities, my husband suggested our kids try it out for themselves. So they did. Although they didn’t get rich off the venture, they did earn a little pocket money and we all appreciated the tidier vehicles.

But it’s hard to keep a car clean inside and out. Within a few days of The Big Clean, my black wagon was covered with enough dust to inspire this observation from a keen young passenger: “Your car is really dirty!” Sigh.

So now I need to know: How do state sales tax laws treat car wash services?

It’s a simple service, washing a car. And yet determining whether or not that service is taxable in the United States is not so simple. There are many subtle differences between states. For example, in some states, vehicle dealers do not pay sales tax on washing or detailing services for their inventory; in other states, that service is taxable. Some states exempt coin-operated washing services while taxing “assisted” or “manual” car wash services. Then there are exempt car wash services in states that generally tax them.

5 questions to ask when taxing car wash services

1. Are manual car washes taxed the same as coin-operated, drive through car washes?
2. Does taxability vary depending on who washes the car: employees or customers?
3. Are any sales of car wash services exempt?
4. What kind of documents are required to support exempt sales?
5. How does tax apply if an invoice includes both taxable and exempt sales?

Sigh. Understanding sales tax is as tricky as keeping a black wagon clean. These questions can only be answered on a state by state, even city by city, basis. Keep reading to learn more about the tax rules for car washing services in specific states (look for the * for particularly confusing, or wacky, policies). You can use the links below to jump to any section:

States that tax car washing services
States that don’t tax car washing services
Additional info

Tax on

Sales tax applies to car wash services (or some of them) in the following states:

• Alaska: Although there is no state sales tax in Alaska, local sales tax is permitted. All sales of goods and services are taxable unless specifically exempted in the code throughout the Kenai Peninsula Borough, which includes Homer, Kenai, Seldovia, Seward and Soldotna. In Juneau, sales tax applies to “any service … unless CBJ law has specifically made it exempt.” For other local taxes, visit local government websites.
• Connecticut: Car wash services are subject to sales and use tax effective July 1, 2015, whether payment is given to an attendant or a coin-operated machine. There is no tax due when the car wash is provided free with purchase of gasoline, and taxation varies when coupons and discounts are involved. Learn more.
• Florida*: “The entire charge for a wash job, in which wax, silicones, or any other substance is added to the water, is taxable. The purchase of materials such as wax, silicones, and the like, which form a protective film or coating, is exempt to the dealer. The dealer shall extend a resale certificate to his supplier in lieu of paying tax.”
  • However, “The charge for a plain wash job, in which only detergent or water softener is added to the water, is exempt. The purchase of detergents or water softeners for use in the performance of the wash job is taxable to the dealer.”
  • But that’s not all. “Dealers who operate coin-operated car wash facilities must calculate the tax at an effective rate of 6.59 percent on each taxable transaction. It is presumed that the amount charged for each taxable transaction is adjusted to include tax. To compute the correct amount of tax due, the dealer should divide the total receipts from taxable transactions by 1.0659 to compute the gross taxable sales and then subtract the gross taxable sales from the total taxable receipts to arrive at the amount of sales tax due. If the dealer is unable to distinguish between the taxable and exempt transactions, it is presumed that all wash jobs performed at such facility are taxable. When a dealer who operates coin-operated car wash facilities can demonstrate to the satisfaction of the Department through its books and records that a lower rate than that which is provided in the preceding subparagraph of this rule is applicable, the tax due on a coin-operated car wash sale shall be at that rate.” See A.C. Rule 12A-1.006 (16)(a)ff.
• Hawaii: All businesses activities, including car wash services, are subject to Hawaii’s General Excise Tax (GET). Additional information.
• Iowa: Vehicle wash and wax services are subject to sales tax. Effective May 25, 2012, Iowa provides an exemption for the “sales price from the sales of water, electricity, chemicals, solvents, sorbents, or reagents to a retailer to be used in providing a service that includes a vehicle wash and wax….” See Iowa Code 423.2.
• Kansas: The gross receipts from the sale of car washes, car-washing services, and car washing and waxing services are subject to tax. This includes coin-operated and manual car washes. Unlike some states, purchases of “materials and equipment used in the operation of a car wash are taxable.” Additional information.
• Minnesota: Motor vehicle washing, waxing, and cleaning services are subject to sales tax. Coin-operated car washes are also taxable. See Sales Tax Fact Sheet 113.
• Mississippi*: Automatic, manual, and self-service car wash services are “subject to sales tax equal to 7% of the gross income of the business.”
  • However, “gross collections from the operations of self-service, coin operated car washing equipment and sales of the service of washing motor vehicles with portable high pressure washing equipment on the premises of the customer” are exempt. Likewise, sales made to the federal government and the State of Mississippi are exempt.
• Nebraska*: “The gross receipts from motor vehicle washing services are taxable.” Motor vehicle dealers must pay tax on detailing services purchased for any of its inventory vehicles.
  • However, coin-operated vacuuming receipts are not taxable, “provided the vacuuming receipts are accounted for separately.” Additional information.
• New Jersey: Car washing services are subject to sales tax.
• New Mexico: Gross receipts tax is imposed on persons who perform services in New Mexico.
• New York State*: Some car wash services are subject to sales tax and some are not. Generally, car wash services are subject to sales tax “when car wash personnel wash, wax, or vacuum the car or assist with these services.” Generally, they are not taxable if no employees are involved. See “Tax off” section below, and see TB-ST-105 for more specifics.
• North Carolina: Washing, waxing, and detail services are taxable as of Jan. 1, 2017; however, self-service car washes are exempt. Additional information.
• Ohio*: The service of washing, cleaning, waxing, polishing, or painting a motor vehicle” is subject to Ohio sales tax. Coin-operated car wash services are exempt.
• Pennsylvania: The washing, cleaning, waxing, polishing or lubricating of motor vehicles is subject to sales tax. Although coin-operated laundry services are exempt, “charges for similar equipment use (sic) in conjunction with motor vehicles are subject to tax.” Additional information.
• South Dakota*: Most services are subject to sales tax in South Dakota. “Cleaning a new or used vehicle is subject to sales tax.” Auto detailers cannot buy detailing services for resale; however, a dealer may purchase new car preparation services for resale, and these include cleaning services. Additional information.
• Tennessee: The service of washing motor vehicles is subject to sales tax.
  • However, coin-operated car wash services are exempt. See 1320-5-1-.72 and 1320-5-1-.53.
• Utah: Car wash services performed by a car wash employee are subject to sales and use tax. Unassisted car washes are exempt. Businesses that sell both assisted and unassisted car washes must record the sales separately or tax all sales. Additional information.
• Washington D.C.: “The sales of or charge for the service of car washing, including cleaning, washing, waxing, polishing, or detailing an automotive vehicle is subject to sales tax.” This took effect on October 1, 2014.
  • However, “The sale of or charge for self-service car washing is not subject to sales tax.” See OTR Notice 2014-09.
• Washington State: The washing and detailing of cars, campers, trucks, trailers, boats, etc. is subject to sales tax whether the service is provided or done by one’s self at a self-service facility. See also WAC 458-20-173
• West Virginia: Most services are subject to sales tax. According to 11-15-8 .Sales tax applies “… to the furnishing of all services….” The only direct mention of car wash services in the sales tax law is this exemption: “Sales of soap to be used at car wash facilities” is exempt with a valid tax exemption certificate.
• Wisconsin: Automatic, coin-operated, manual, and self-service car wash services are taxable unless they’re provided free of charge with the purchase of gasoline, in which case they’re exempt. Read more.
• Wyoming: Car detailing services are subject to sales tax. Additional information.

Tax off

Unless otherwise noted, sales tax does not apply to car wash services in the following states:

• Alabama: Exempt
• Alaska: There is no state sales tax in Alaska and not all localities impose a local sales tax. See “Tax on” section.
• Arizona*: The state transaction privilege tax does not apply to car wash services. However, some cities license and collect tax independently and there “are some differences between the state and local authorities in the taxability of transactions.” Read more.
• Arkansas*: Arkansas law specifies that cleaning services provided by coin-operated car washes are exempt from sales tax.
  • However, sales tax applies to the service of “initial installation, alteration, addition, cleaning, refinishing, replacement, and repair of motor vehicles” (emphasis mine). Questions? I have them, too.
• California: “The sale of services where no tangible personal property is transferred, or where the transfer of property is incidental, are not subject to sales and use tax.” See BOE Publication 61.
• Colorado: State sales tax is generally not levied on services in Colorado. The Department of Revenue specifies in GIL-12-015 that the following, “Full-service truck washes are generally viewed as a non-taxable service.”
• Florida: See “Tax on” section.
• Georgia: Exempt
• Idaho: Exempt
• Illinois: Exempt
• Indiana: “Charges for washes, lubrications, polishing, and waxing are not subject to sales tax. (The service station must pay sales or use tax on the purchase of any supplies consumed.” See Information Bulletin #15.
• Kentucky: Exempt
• Louisiana: Exempt
• Maine: Sales tax does not apply to services, such as car washing, where “no sale of tangible personal property is involved.” See Instructional Bulletin No. 1.
• Maryland: “The sale of a service is generally not taxable except as otherwise provided by law.”
• Massachusetts: Exempt
• Michigan: Exempt
• Missouri: Exempt
• Nevada: Exempt
• New York: “Car wash services are exempt if the car or other property is washed, waxed, or vacuumed exclusively with coin-operated equipment; the car is washed without any assistance by the car wash employees; and one of these conditions is met: The customer washes, waxes, or vacuums the car or other property. (A charge for a coin-operated vacuum is not taxable whether it is located at a car wash facility or any other location.) OR The car is washed, waxed, or vacuumed by fully automated equipment.” See TB-ST-105.
  • "The services of cleaning or shampooing automobile carpets, upholstery, and other car interior surfaces that are covered in cloth or vinyl fabrics or leather by applying cleaning compounds or solvents are not taxable. The services of carpet and upholstery cleaning must be available to customers separate and apart from otherwise taxable washing or detailing services. These services will be taxable if provided as part of an overall car washing or detailing service.”
• North Carolina: Self-service car washes are exempt (the service is taxable as of Jan. 1, 2017, when provided by others)
• North Dakota: “Wash, wax, polish and grease jobs (on automobiles) are services which are not taxable under sales tax law.”
• Ohio: Coin-operated car wash services are exempt, although others are taxable (see above). Additional information.
• Oklahoma: Most services are not subject to sales tax.
• Rhode Island: Exempt
• South Carolina: Exempt
• Tennessee: Coin-operated car wash services are exempt. However, the service of washing motor vehicles is subject to sales tax. See 1320-5-1-.72 and 1320-5-1-.53.
• Texas: “Washing a car is not a taxable service under the Texas Tax Code.” See also Texas Administrative Code.
• Utah: “Charges for cleaning, washing or detailing vehicles held in resale inventory are not taxable.” Likewise, sales of “unassisted car washes,” which include cars washed only by machines, are exempt.
       However, car wash services performed by a car wash employee are subject to sales and use tax. Businesses that sell both assisted and unassisted car washes must record the sales separately or tax all sales. Additional information.
• Vermont: Coin-operated car washes are exempt. See also Vermont Statutes.
• Virginia: Most services are exempt. Additional information.

Phew! But wait, there’s more…

Outliers

Delaware, New Hampshire and Oregon have no state or local sales tax. Alaska has no state sales tax but allows local sales tax (see above). Montana allows certain communities to impose local option taxes, but not on car wash services.

Discounts*

Discounts and coupons complicate sales tax. In many states, if the discount or coupon is provided by a third party, sales tax is due on the original sales price of taxable car wash services, not the discounted price. If the seller provides the coupon or discount, tax is owed on the reduced sales price. This is the general rule, but as with all things sales tax, there are exceptions. When in doubt, contact your state department of revenue. Or implement automated sales tax Software-as-a-Service (SaaS), which manages sales tax for you.

Fundraisers*

In Connecticut, “Certain organizations related to youth activities can make sales of car wash services for $20 or less without being required to collect sales and use taxes.”

Yet in Hawaii, “income from fundraising activities such as … car washes … is

[generally] subject to the general excise tax at the rate of 4%.” This is true even if an organization holds a “free” car wash with a request for donations. According to the Department of Taxation, “As a fundraising activity, it is reasonable to expect that those having their cars washed would pay a certain amount for that service.” Additional information.

In Nebraska, “If your nonprofit organization chooses not to set a fee or charge for its car wash and will accept a free-will donation, the free-will donation is not taxable….” Fundraising car washes conducted by schools are exempt, “even if a specific charge is set for the car wash.” Religious organizations may only put on one sale each year that not taxed; it could be a car wash. Additional information.

Fun Fact*

According to the Supreme Court of Wyoming, the Wyoming Department of Revenue adopted a regulation imposing sales tax on car wash services in 1997. It was later declared null and void by the Seventh Judicial Court. Learn how litigious the taxation of car wash services can be.

Interested in learning more about how sales tax applies to services? Read Rules of the road.