Wrong Numbers, Real Consequences: What Massachusetts Shops Need to Know About Insurer Sales Tax Reporting

by Sean Preston, Managing Attorney, Coverall Law

In June, we warned Massachusetts repair shops about a new tax reporting rule. (See grecopublishing.com/near0626legalperspective/)

That rule is 830 CMR 62C.8.2, Motor Vehicle Insurer Annual Information Returns. It requires insurers to tell the Massachusetts Department of Revenue, or DOR, how much they paid each repair shop. It also requires insurers to report how much of those payments they say was for Massachusetts sales and use tax.

Our concern was simple.

Your shop has one set of books. The insurer now creates another set of numbers about your business. Those numbers go to the state.

The two sets of numbers may not match.

The June article explained one major reason why. Your shop records what it bills and collects. The insurer reports what it paid. Deductibles, short-pays, supplements, denied items and other issues can make those numbers very different.

That warning still stands.

But after taking a deeper look at Massachusetts sales tax law, we now see another part of the problem.

Even the correct sales tax number can depend on facts the insurer may not know. It can depend on what materials actually became part of the car. It can depend on what the shop used up while doing the repair. And, as a new Massachusetts tax case shows, it can depend on how the shop writes its invoice.

That leads to the bigger question:

How can an insurer always report the right sales tax number if it may not have the facts needed to know what that number is?

The Tax Rule Every Shop Should Know

The place to start is 830 CMR 64H.1.1, Service Enterprises.

This regulation applies to service businesses, including motor vehicle repair shops. It explains how Massachusetts sales tax works when a business provides both labor and physical property.

The basic idea is simple.

Some things become part of the customer’s car.

Other things are used by the shop to do the work but do not become part of the car.

Those things are not always taxed the same way.

Under 830 CMR 64H.1.1(5)(a), a repairer must generally collect sales tax on parts and materials furnished during a repair when their value is more than inconsequential. The regulation also makes the invoice important. If the shop does not separate the fair retail selling price of those parts and materials from labor, DOR may treat the entire repair charge as taxable.

The regulation uses 10 percent as a general guide. Property worth less than 10 percent of the total charge is usually considered “inconsequential,” although the facts of each job can still matter.

For collision repair shops, DOR provided even more specific guidance in Directive 99-10: Automobile Repainting.

Every Massachusetts collision repair shop should know this Directive and keep it handy.

Directive 99-10 explains the difference between materials that are actually put into the repaired vehicle and materials the shop uses up while doing the work.

DOR gives paint, hardener, body filler and clear coat as examples of materials that can actually become part of the vehicle.

It gives masking paper, tape, sandpaper, paint brushes and squeegees as examples of materials consumed by the shop. Those items help perform the repair, but they do not become part of the finished vehicle.

That difference matters.

Think about paint. A shop may mix more paint than actually ends up on the car. Some may stay in the cup. Some may become waste. For separately stated materials, Directive 99-10 focuses on property actually incorporated into the vehicle.

That means the shop may need to know what became part of the repair and what was consumed in doing the repair.

Directive 99-10 also makes another important point: the taxable fair retail selling price includes the shop’s cost plus its markup. The tax is not limited to what the shop paid its supplier.

A New Auto Body Case Shows Why the Invoice Matters

In April 2026, the Massachusetts Appellate Tax Board issued an important decision involving an auto body shop: Lofa Auto Body, LLC v. Commissioner of Revenue.

The case did not involve the new insurer reporting law. The tax periods came before that rule.

But Lofa matters because the Board applied 830 CMR 64H.1.1 directly to auto body repairs.

The shop performed repairs that included both labor and auto parts. It believed it was the consumer of the parts. It paid tax when buying them and did not collect sales tax from customers the way DOR said it should.

There was another problem.

The shop’s invoices did not separately state its labor and parts charges.

That became very important.

The Appellate Tax Board found that the parts transferred in a typical repair were worth much more than 10 percent of the total repair charge. The property was therefore not inconsequential.

Because the shop transferred meaningful amounts of property and did not separately state labor and property, the Board upheld sales tax on the full repair charge.

The Board also explained that the result could have been different if the shop had separately stated labor and property. In that situation, the sales tax would apply to the property charge rather than the full repair bill. Lofa Auto Body, LLC v. Commissioner of Revenue, Docket No. C348289, Mass. App. Tax Bd. (Apr. 7, 2026).

That gives shops a very clear lesson: The tax result can depend on both what happened during the repair and how the repair appears on the invoice.

That makes good invoices more than good bookkeeping.

They can become evidence of the shop’s tax treatment.

And that brings us right back to the new insurer reporting rule.

So How Does the Insurer Know?

Under 830 CMR 62C.8.2, the insurer must report the total amount it paid your shop.

It must also report how much of those payments is “attributable” to Massachusetts sales and use tax.

Now think about the rules we just discussed.

Massachusetts law can ask whether property was transferred to the customer.

Directive 99-10 can require a difference between paint or filler that became part of the vehicle and tape or sandpaper that the shop used up.

Lofa tells us that the way the shop separates labor and property on the invoice can also affect the tax result.

So how does an insurance company know all of that?

It may see an estimate.

It may see an appraisal.

It may see the final invoice.

It certainly knows what it paid.

But does it know how much paint actually stayed on the car?

Does it know how much became waste?

Does it know how much filler remained on the vehicle?

Does it know what supplies were consumed by the shop?

Some of those facts may appear on good shop records. Some may not.

The basic problem remains.

The shop performs the repair. The insurer does not.

That does not mean the insurer is doing anything wrong.

It means the insurer may simply not be in the best position to know the exact tax answer.

Yet the insurer is still required to send DOR a tax-related number about the shop.

DOR’s Guidance Shows the Limits

DOR appears to recognize this problem.

In its Motor Vehicle Insurers Annual Information Return Instructions (MVIAIR) and FAQs, DOR explains how insurers should complete the new report, called the MVIAIR.

DOR tells insurers to use an itemized appraisal or final invoice showing parts, labor and sales tax.

More importantly, DOR says insurers are not expected to calculate sales tax for the repair shop.

That is an important point.

The insurer must report a tax number, but the state does not expect the insurer to independently determine the shop’s tax.

Instead, the insurer is told to rely on repair documents.

Things get even less exact when the insurer pays less than the amount shown on those documents.

DOR provides a way to approximate the tax.

For example, if an insurer pays only 60 percent of an appraisal or invoice, DOR may allow it to report 60 percent of the sales tax shown on that document.

The math is simple.

Real repairs are not always simple.

An insurer might pay all of the taxable parts but refuse some labor. It may pay for one operation and deny another. A deductible may also make up part of the difference.

So paying 60 percent of a bill does not always mean the insurer paid 60 percent of every item on the bill.

That means the insurer’s number may follow DOR’s reporting method without being the exact same number found in the shop’s tax records.

This is a key point for both shops and DOR:

A number can follow the reporting rule without perfectly describing the repair.

One repair can therefore produce several different numbers: the shop’s invoice, the insurer’s payment, the taxable property amount and the tax amount eventually reported by the insurer.

Those numbers are related.

They are not always the same.

Sometimes the Number May Simply Be Wrong

Then there is another kind of problem.

It has nothing to do with paint.

It has nothing to do with invoice structure.

Sometimes the data itself may simply be wrong.

MABA recently heard from a member who says an insurer reported more than $111,000 in payments to the shop.

The shop says its own records show that it received less than $15,000 from that insurer for the period in question.

The shop says it contacted the insurer and received a list of claims used to reach the reported total.

After checking that list, the shop says several claims belonged to another repair business.

We have not independently reviewed the insurer’s filing, the shop’s bank records or the carrier’s final response. We are therefore not accusing the insurer of illegal conduct or bad faith.

But the example should get every shop owner’s attention.

If accurate, this is not a normal difference caused by a deductible or short-pay.

It appears to be a basic data problem.

A claim may have been tied to the wrong shop. A payment may have been tied to the wrong federal identification number. Or a vendor record may have been wrong.

Whatever caused it, the example shows that there are at least two separate risks in this system.

The first is a tax calculation problem. The insurer may not have enough information to know the exact tax amount.

The second is a data problem. The wrong claim, payment, shop or tax identification number can create a completely wrong report.

Even the best tax formula cannot fix bad data.

The Law Requires Insurers to Correct Errors

Fortunately, 830 CMR 62C.8.2 recognizes that mistakes can occur.

When an insurer identifies an error in an information return it has already filed, 830 CMR 62C.8.2(3)(c) requires the insurer to file a corrected return with DOR.

The insurer must also give the repair shop a copy of that corrected return within 30 days after filing it.

That rule matters.

Do not settle for a phone call that says, “We fixed it.”

Ask if a corrected return was actually filed.

Ask when.

Ask for your copy.

The regulation also requires insurers to keep records supporting their reported payments. Those records include items such as the insured’s name, deductible, tax tied to the claim, date of payment, check or EFT information and shop W-9 information.

In plain English, a reported payment should leave a trail.

If the carrier says it paid your shop, there should be a claim and payment record behind that number.

What Shops Should Do Now

Start with your own house.

Know 830 CMR 64H.1.1.

Read DOR Directive 99-10.

Understand what the Lofa Auto Body case says about separating labor and property.

Then look at your invoices.

Are labor and parts clearly separated?

Are taxable materials handled correctly?

Are shop-consumed supplies handled correctly?

Does the invoice clearly show what the customer bought?

Next, review every insurer MVIAIR your shop receives.

Do not assume the number is correct because it came from a large insurer or a computer system.

Compare the reported payment total to your books.

Compare the tax figure to your own records.

If something is far off, ask for the claims behind the total.

Check them one by one.

Did your shop repair that car?

Did your shop receive that payment?

Was something counted twice?

Does the claim even belong to your business?

Was the correct FEIN used?

If you find an error, put the dispute in writing.

State what the insurer reported.

State what your records show.

Identify the claims or payments that appear wrong.

Ask the insurer to investigate and, if needed, file a corrected return.

Then get proof of the correction.

Most important, do not change accurate shop records simply to make them match a bad insurer report.

Your shop remains responsible for its own tax reporting.

If your records are right, the answer is not to make them wrong so somebody else’s number will match.

DOR and Rulemakers Should Look at the Limits

Third-party reporting can help the state find real tax problems.

But this system also has limits.

The insurer does not perform the repair. It may not know what materials actually became part of the vehicle. The tax result can depend on the shop’s invoice. DOR itself says the insurer is not expected to calculate the shop’s sales tax, and in some cases allows an estimated tax figure.

That raises several fair questions.

Should a tax amount be marked as an estimate when it was created through an estimate?

Should DOR distinguish between a number taken from a final invoice and one taken from an appraisal or formula?

And how much weight should be given to an insurer’s tax number when the insurer may not know all the facts needed to determine the actual tax?

Those questions do not mean the reporting system has no value.

They mean its limits need to be understood.

The June Warning, Completed

In June, we warned that insurer payments and shop sales may not match.

We now know the problem goes deeper.

Massachusetts tax law can turn on what property actually becomes part of the vehicle. Directive 99-10 explains that paint and materials are not all treated the same.

Lofa Auto Body shows that the way the shop writes its invoice can change the tax result.

Then the new reporting rule asks an insurer to report a sales-tax number even though DOR itself recognizes that the insurer may need to rely on shop records or use an estimate.

The insurer’s report can be useful.

But it is not the shop’s tax return.

It is not the shop’s books.

And it should not be treated as if the insurer knows more about the repair than the shop that performed it.

The shop does the work.

The shop creates the invoice.

The shop keeps the records.

And the shop remains responsible for getting its tax reporting right.

That is why Massachusetts shops should know these rules, build clear invoices, keep strong records and review every insurer report they receive.

The June article warned that the numbers might not match. Now we can see why. Sometimes the insurer may not have the facts needed to know the right number in the first place. And sometimes, the number may simply be wrong.

Want more? Check out the October 2026 issue of New England Automotive Report!