What is a motor vehicle salvage pool?

A motor vehicle salvage pool is a business that is engaged primarily in selling or distributing damaged motor vehicles at wholesale, whether or not the motor vehicles are owned by that person.

Are a pool's purchases of motor vehicles taxable?

Purchases of motor vehicles are subject to sales or use taxes, unless an exemption applies. For example, if the pool purchases a motor vehicle that is not used for any purpose other than holding it for sale in the regular course of business, the pool may provide the seller of the vehicle with a fully completed sales and use tax exemption certificate (e.g., Form S-211) claiming resale.

Are the pool's purchases of towing services and vehicle inspection or repair services taxable?

The pool's purchases of towing services and motor vehicle inspection or repair services are subject to sales or use taxes, unless an exemption applies. For example, if the pool purchases a towing service for a vehicle that it owns at the time of the towing service, and it does not use the vehicle for any purpose other than holding it for sale, the pool may provide the towing company with a fully completed sales and use tax exemption certificate claiming resale.

Note: If the pool pays for towing service on behalf of another person, such as the motor vehicle owner or an insurance company, the towing service provider should issue its invoice in the name of the other person (vehicle owner or insurance company).

Are the pool's sales of towing services and motor vehicle inspection or repair services taxable?

The pool's sales of towing services and vehicle inspection or repair services are subject to sales tax, unless it receives a fully completed sales and use tax exemption certificate from its customer.

Are the pool's receipts from sales of vehicles taxable?

The pool's sales of motor vehicles are subject to sales or use taxes, unless it receives a fully completed sales and use tax exemption certificate from its customer. Sales of parts, accessories, and attachments for vehicles are also taxable, unless an exemption applies.

Example - Motor Vehicle Totaled in Accident

Facts:

  • Day 1. After an accident, the sheriff's department comes to the scene and asks the motor vehicle owner ("Insured") if he or she has a preference for which towing company to call. Insured is an individual who is not engaged in the business of buying or selling motor vehicles. The sheriff calls Towing Company and the vehicle is towed to Towing Company's yard. Insured calls his or her insurance company ("Insurance Company").
  • Day 2. Insurance Company has the vehicle towed from the yard to a dealership or body shop ("Body Shop").
  • Day 3. Body Shop tears the vehicle down (takes parts off to expose damage). Body Shop inspects the vehicle for damage.
  • Day 4. Insurance Company's adjuster determines that the vehicle is totaled and will not be repaired. The vehicle gets branded with a salvage title. Insurance Company takes ownership of the vehicle from Insured, and does not make any use of the vehicle. Salvage Pool Company takes possession of the vehicle from Body Shop on behalf of Insurance Company.
  • Day 5. Salvage Pool Company pays all towing charges and body shop charges. The payment for the first tow is made on behalf of Insured. The payments for the second tow and for the tear down and inspection are made on behalf of Insurance Company. Salvage Pool Company does not make any use of the vehicle.
  • Day 6. On behalf of Insurance Company, Salvage Pool Company sells the vehicle to a licensed salvage yard or dealership. The title for the vehicle is in the name of Insurance Company. Salvage Pool Company, who has a Power of Attorney to act on behalf of Insurance Company, endorses the vehicle title over to the licensed salvage yard or dealership. Salvage Pool Company charges Insurance Company for (1) the reimbursement of the towing charges and body shop charges, and (2) a commission for selling the vehicle on behalf of Insurance Company.

Tax treatment:

Charge by Towing Company - First Tow: Towing Company's charge for the first tow from the accident scene to its yard is taxable. When Salvage Pool Company pays for the towing service, it is making this payment on behalf of Insured, the purchaser of the towing service. There is no exemption that applies to Insured's purchase of the towing service. Salvage Pool Company may not provide an exemption certificate claiming resale for the towing service, because Salvage Pool Company is not the purchaser.

Charge by Towing Company - Second Tow: Towing Company's charge for the second tow from its yard to the Body Shop is taxable. When Salvage Pool Company pays for the second tow, it is making this payment on behalf of Insurance Company, the purchaser of the towing service. Insurance Company cannot purchase the second tow without tax, for resale, since, at the time of the towing service, Insurance Company is not holding the vehicle for sale.

Charge by Body Shop: Body Shop's charge for tearing down and inspecting the vehicle is taxable. When Salvage Pool Company pays for the tear down and inspection, it is making this payment on behalf of Insurance Company, the purchaser of the tear down and inspection service. Insurance Company cannot purchase the tear down and inspection service without tax, for resale, since, at the time the service is performed, Insurance Company is not holding the vehicle for sale.

Sale of Vehicle by Insured to Insurance Company: Insurance Company's purchase of the vehicle from Insured is not taxable (i.e., it is for resale).

Sale of Vehicle by Salvage Pool Company on Behalf of Insurance Company: Salvage Pool Company's sale of the vehicle, on behalf of Insurance Company, to the licensed salvage yard or dealership, is taxable, unless the licensed salvage yard or dealership provides a fully completed sales and use tax exemption certificate claiming resale. The licensed salvage yard or dealership may purchase the vehicle without tax, for resale, if it will not make any use of the vehicle other than to sell it in whole or as parts. If the purchaser does not provide a fully completed sales and use tax exemption certificate, Insurance Company, or Salvage Pool Company acting on their behalf, is liable for the payment of sales tax on the sale.

Salvage Pool Company's Charges to Insurance Company: Salvage Pool Company is not liable for the payment of sales tax on the charges for (1) reimbursement of the towing and body shop charges, or (2) the commission for selling the vehicle.

Where can I find more information?

Note: Additional information about towing services and vehicle transactions is provided in Publication 202, Sales and Use Tax Information for Motor Vehicle Sales, Leases, and Repairs, Part VI.B.

You may also email us at DORSalesandUse@wisconsin.gov or call us at (608) 266-2776.

March 25, 2015