Effective October 1, 2026, auto parts will no longer be subject to the tax substitution regime in São Paulo. Learn about the impacts on inventory, invoices, ICMS calculations, and ERP configuration.
An important change is on the radar of auto parts importers, manufacturers, and distributors: starting on October 1, 2026, the goods listed in Annex XIV of CAT Ordinance 68/2019 are no longer subject to ICMS through tax substitution in domestic transactions and in shipments destined for the State of São Paulo.
In practice, the tax is no longer collected in advance by the manufacturer or importer for the entire supply chain. For companies under the Periodic Assessment System, the ICMS is once again calculated using the standard system of debits and credits at each stage of distribution.
But please note: this does not mean that simply unchecking the “ST” option in the product registration is enough.
The same item may be sold without tax substitution to São Paulo and remain subject to ICMS-ST when shipped to another state. This change requires a review of the company’s records, inventory, tax documents, tax calculations, and, most importantly, the rules configured in the ERP system.
What led to the end of the ICMS-ST tax on auto parts in São Paulo?
The change was established by the SRE Administrative Order No. 34/2026, published by the São Paulo State Department of Finance and Planning.
For the auto parts sector, the standard repeals:
- Annex XIV of CAT Ordinance 68/2019, which listed the auto parts subject to tax substitution in São Paulo;
- SRE Ordinance 16/2023, which established the calculation basis and value-added indices for the sector.
The repeal takes effect on October 1, 2026. SRE Ordinance 34/2026 itself also stipulates that inventory must be handled in accordance with the procedures set forth in CAT Ordinance 28/2020.
What is the status of internal operations in São Paulo?
For transactions conducted on or after October 1, 2026, the auto parts actually covered by the exemption will no longer have the ICMS for subsequent stages collected through tax substitution.
For a taxpayer in São Paulo subject to the Periodic Assessment Regime, an internal sale will typically be subject to:
- CFOP for sales without tax substitution, depending on the origin and nature of the transaction;
- CST consistent with the specific taxation of the goods;
- Tax base and breakdown of the state ICMS, when applicable;
- The "Base" and "Amount" fields for ICMS-ST are left blank when tax substitution does not apply;
- The CEST is retained if the goods are listed in ICMS Agreement 142/2018.
Imagine a São Paulo-based distributor that buys an auto part for R$ 10,000 and resells it for R$ 15,000. In a transaction fully taxed at the illustrative rate of 18%, the purchase may generate a credit of R$ 1,800 and the sale, a debit of R$ 2,700. The net result would be R$ 900, before other credits, debits, benefits, or adjustments.
This example applies to taxpayers under the periodic filing system and those using simplified assumptions. Companies under the Simples Nacional system do not follow the same logic of debits and credits: for them, the ICMS follows the Simples rules, and the CSOSN must be determined based on the transaction and the issuer’s circumstances.
What about purchases from suppliers in other states?
When a company from another state sells auto parts to a taxpayer located in São Paulo, the transaction must also take into account the São Paulo exemption.
O ICMS Protocol 41/2008 It makes its application contingent on the existence of tax substitution in internal transactions within the destination state. Since São Paulo no longer subjects the auto parts covered by the regime to this tax, such imports generally occur without ICMS-ST being withheld for the state of São Paulo.
Even so, it is not safe to establish a general rule. Before authorizing the invoice, the company must verify:
- Date of the transaction;
- NCM code, description, and CEST code for the goods;
- Origin and destination;
- Purpose of the acquisition;
- Tax status of the recipient;
- Whether there are any specific rules or applicable exceptions.
There are even historical records that need to be preserved in the ERP. As of January 1, 2026, for example, Protocol 41/2008 no longer applies to shipments of goods classified under CEST 01.015.00 when São Paulo is the origin or destination.
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End of the ICMS-ST Tax on Auto Parts in São Paulo
Will the São Paulo-based company still be able to collect ICMS-ST for other states?
Yes. The end of the tax substitution system for auto parts in São Paulo does not eliminate the system in other states.
If a São Paulo-based company sells to a state that holds the goods in internal transit and there is an applicable agreement, the shipper may remain responsible for withholding and remitting the tax to the destination.
In this scenario, it will be necessary to verify, among other things:
- If the destination state continues to treat the goods as subject to tax substitution;
- If the origin and destination are covered by a protocol or agreement;
- Who is responsible for collection;
- Original MVA or adjusted MVA;
- Internal tax rate and any reduction in the tax base;
- Incidence of FCP-ST;
- Requirement for a GNRE or use of a state registration number at the destination;
- The appropriate CFOP, CST, or CSOSN.
A common mistake is to apply the MVA to the value of the goods without considering the rest of the tax base. Depending on the transaction and the destination’s laws, the tax base may include freight, insurance, taxes, and other charges billed to the recipient. In interstate transactions, it may also be necessary to use an adjusted MVA.
Should the CEST be removed from the registry?
No.
O ICMS Agreement 142/2018 stipulates that the tax document must include the CEST for the goods listed in its attachments, even when the transaction is not subject to tax substitution.
This means that CEST does not function as an automatic formula for calculating ICMS-ST. It identifies the goods within the segments subject to the regime. The actual application of the ST depends on state law, the product description, the transaction, and any existing exceptions.
Therefore, the correct approach is to keep the CEST in the master file and treat the tax ruling as a separate rule.
How should we account for inventory on September 30, 2026?
Inventory deserves its own section in the transition plan.
According to CAT Administrative Order No. 28/2020, any company that wishes to claim a tax credit or offset the tax related to goods excluded from the ST must take inventory of its existing stock as of September 30, 2026.
The planned procedures include:
- Preparation of digital reports by product;
- Identification of the incoming tax documents that support the quantity on hand;
- Recording of the inventory;
- Fill out Section H of the EFD, when applicable, using reason code 02, which refers to a change in the method of taxation;
- Calculation of the credit or offset amount in accordance with the formulas set forth in the ordinance.
For RPA taxpayers, the credit is entered in Block E of the EFD with the adjustment code SP020750, in 12 equal and consecutive monthly installments. The first installment corresponds to the first month of the exclusion period.
For taxpayers who have opted for the Simples Nacional system, the treatment is different. The amount is offset on the PGDAS-D form, using the “reduction of the tax base” field, in the month following the month of exclusion. If the amount exceeds the ICMS due for that period, the difference may be carried forward to subsequent months.
Another important precaution involves the fields vBCSTRet e vBCFCPSTRet for incoming NF-e invoices issued by replaced suppliers. When it is not possible to identify the tax base for the withholding in the invoice line item, CAT Ordinance 28/2020 stipulates that the credit shall be considered zero. Any omission or underreporting may be corrected by a supplemental invoice issued by the supplier.
The company may also choose not to utilize the inventory credit. In that case, the regulation itself provides for an exemption from the procedures set forth therein. This decision, however, must be analyzed from a financial perspective and documented.
What needs to change in the ERP system?
Parameterization should no longer depend solely on the product master data. Tax decisions must take into account the relationship between the goods, transaction, customer, origin, destination, and effective period.
A sound tax framework should include, at a minimum:
- Start and end dates of the rule;
- State of origin and destination;
- NCM, commercial description, and CEST;
- Origin of the goods;
- Purpose: resale, manufacturing, business use, use and consumption, or end consumer;
- Client profile and tax status;
- Availability of ST at the destination;
- Protocol, agreement, and applicable exceptions;
- CFOP, CST, or CSOSN;
- Custom tax rate, MVA, tax base reduction, and FCP;
- Person responsible and method of collection;
- Handling of returns and transactions processed under previous rules.
The rule in effect through September 30, 2026, should not be deleted. The best approach is to close it and create a new version effective October 1. The history will be necessary for refunds, audits, correction letters, cancellations, reprocessing, and verifying previous periods.
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What scenarios should be tested before the turn of the year?
Before implementing the new rules, the company must issue approval notices and verify the XML, DANFE, bookkeeping, and tax calculations.
The minimum tests include:
- Manufacturer, importer, and distributor operating within São Paulo state;
- A supplier from another state selling to São Paulo;
- A São Paulo-based company selling to a state that maintains the ST;
- Sell to a destination for which there is no ST for the item;
- Industrialization;
- Assets, use, and consumption;
- Taxpaying and non-taxpaying end consumers;
- A company registered under the Simples Nacional tax system;
- Refunds for transactions occurring before and after October 1;
- Utilization of inventory credit.
In 2026, the ERP project must also comply with the groups and technical rules related to the IBS and CBS in tax documents. Since the schedule and validations underwent adjustments during the year, the implementation must follow the current technical notes and announcements from the Federal Revenue Service, the CGIBS, and the electronic tax document portals.
Mistakes the Company Should Avoid
Avoid:
- Remove the CEST from the product;
- Disable the ST globally in the product master record;
- Treat all sales to the manufacturing industry the same way;
- Using MVA without verifying whether it is original or modified;
- Assume that every protocol continues to produce ST;
- Automatically cancel the state registration of a substitute teacher in São Paulo;
- Exclude inventory on hand as of September 30;
- Override the old ERP rule;
- Deploy the configuration to production without testing the EFD and the calculation.
The change may improve cash flow, but it requires planning
The elimination of São Paulo’s ICMS-ST tax on auto parts is likely to reduce the advance payment of the tax included in the purchase cost. At the same time, RPA distributors must now account for the tax liability on their sales and set aside cash for monthly tax calculations.
It will also be necessary to review prices, margins, inventory credit, contracts, customer records, and billing processes.
Therefore, the transition should not be limited to the tax department. It involves accounting, finance, purchasing, sales, logistics, technology, and those responsible for the ERP system.
The sooner a company maps out its products and operations, the lower the risk of improperly collecting ICMS-ST, issuing invoices with incorrect tax amounts, or losing inventory-related credits.
Count on CLM Controller to help you prepare for the transition
CLM Controller can assist your company in diagnosing operations, reviewing the NCM and CEST, managing inventory, defining the tax matrix, and validating the rules that are set to take effect in October 2026.
Do you need to review the tax settings for your auto parts business? Contact the CLM Controller team and get a head start on the changes before the year-end.
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1. When does the ICMS-ST for auto parts in São Paulo end?
The change takes effect on October 1, 2026, in accordance with SRE Ordinance 34/2026.
2. Is the ICMS-ST tax on auto parts being eliminated throughout Brazil?
No. The change applies to São Paulo. Sales destined for other states continue to be governed by the laws of the destination state.
3. Should the CEST be removed from the registry?
No. CEST must continue to be notified when the goods are listed in ICMS Agreement 142/2018, even if the ST is not applied.
4. What happens to the existing inventory?
Inventory as of September 30, 2026, must be analyzed in accordance with CAT Ordinance 28/2020, particularly for the purpose of claiming a tax credit or offsetting tax liability.
5. Do we need to change the ERP system?
Yes. The rules must be configured by product, operation, origin, destination, and effective period. It is not safe to simply disable the ST in the product record.
