Tax Type
Retail Sales and Use Tax
Description
Vehicle service contracts; Extended warranty plans
Topic
Taxability of Persons and Transactions
Date Issued
03-20-1987
March 20, 1987
Re: Ruling Request/ Sales and Use Tax
Dear **********************
This will reply to your letter of January 28, 1987 seeking information on the correct application of the sales and use tax to extended warranty plans and vehicle service contracts offered for sale by automobile dealers in connection with the sale of new and used motor vehicles.
§58.1-608(2) of the Virginia Code provides an exemption from the sales and use tax for "insurance.. transactions which involve sales as inconsequential elements for which no separate charges are made, nor services rendered by repairmen for which a separate charge is made."
In addition, §630-10-62.1 of the Virginia Retail Sales and Use Tax Regulations provides in pertinent part that "[e]xtended warranty plans issued by an insurance company regulated by the Bureau of Insurance of the State Corporation Commission are insurance transactions and are not subject to the tax." (emphasis added)
Based on information recently received from the State Corporation Commission's Bureau of Insurance, it has been determined that vehicle service contracts or extended warranty plans which identify the seller, dealer or manufacturer as the guarantor, (the party generally identified as "We" in the contract), against certain specified motor vehicle breakdowns, are not considered contracts of insurance subject to licensure or regulation by the Bureau of Insurance. This is true, according to the Bureau notwithstanding that such contracts might also be issued through an insurance agent or underwritten by an insurance company which is licensed or regulated by the Bureau.
However extended warranty plans or vehicle service contracts which identify some party outside the manufacturing/ sales chain as the "We" guaranteeing against the covered breakdowns are generally considered by the Bureau of Insurance to be contracts of insurance subject to regulation and licensure by the Bureau.
Therefore, to the extent that any prior ruling or determination of the department held any dealer issued vehicle service contracts to be exempt of the tax it is hereby deemed invalid.
Accordingly, absent specific written instructions from the department to a particular dealer to the contrary, the total sales price of all extended warranty plans and/or vehicle service contracts issued by Virginia automobile dealers is subject to the tax (currently at a rate of four and one-half percent), at the time of sale to customers and the dealers must report such tax collected to the department when filing their monthly retail sales and use tax returns.
I regret any confusion which may have been caused by any prior ruling of the department concerning extended warranty plans or vehicle service contracts which was based on erroneous information provided to the department.
I hope this has responded to your questions but please let me know if you have any further questions. In addition, while the department intends to publish a Tax Bulletin in the near future to address this policy clarification we would appreciate your assistance in notifying members of your association of this clarification.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner