Tax Type
Retail Sales and Use Tax
Description
Extended mechanical breakdown plans
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
02-22-1985
February 22, 1985
Dear ****
This will reply to your application of December 28, 1984, on behalf of * * * (Taxpayer) doing business as * * * requesting relief from an assessment of sales tax.
FACTS
Taxpayer, an automobile dealer, in connection with its sales of new and used cars, offers for sale a variety of mechanical breakdown protection plans, which vary in coverage depending on the age or mileage of the vehicle sold, and the amount of "deductibles' the purchaser must pay.
One of such plans, known as "the mechanic' is underwritten and administered by * * *, an affiliate of * * *, of * * *. Neither of these companies is registered with the Virginia Bureau of Insurance.
The lump sum coverage purchased under the various plans is limited to mechanical breakdowns of specified parts, and provides for each such covered breakdown, repair parts and labor free of charge, (subject to the deductibles) plus specified amounts for towing, emergency road service and rental of a substitute vehicle.
When Taxpayer makes a repair to a covered vehicle under one of the plans, it charges the underwriter the costs (to the extent they exceed the deductible) of all parts and labor. Taxpayer pays Virginia sales tax on the purchase of repair parts, and then passes such tax on to the underwriter. Therefore, taxpayer has not collected sales tax on the total purchase price of the mechanical breakdown plans.
Taxpayer argues that its sales of mechanical breakdown protection plans should not be subject to sales tax because such sales represent sales of insurance and not sales of tangible personal property and services. Concurrently, Taxpayer argues that if such sales are determined to be sales of tangible personal property, they should be exempt from sales taxation under § 58-441.6(a) now § 58.1-608(2) of the Virginia Code.
DETERMINATION
§ 58.1-608(2) of the Virginia Code, exempts from the sales and use tax:
Secs. 58.1-602(14) and 58.1-603 of the Virginia Code impose a sales tax on all retail sales in the state. The term "retail sales' or "sales at retail' mean sales "to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter.' § 58.1-602(17) defines "sales price' as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . [but does] not include (i) any cash discount allowed and taken, [or] (ii) any amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold.
The sale of the mechanical breakdown plans by Taxpayer represents the sale of tangible personal property in the form of repair parts. The total sales price of such agreements is therefore subject to the tax, notwithstanding the fact that a portion of such price represents the cost of labor and other services, since the charge for such services cannot be separately stated at the time the agreement is sold.
Furthermore, the fact that Taxpayer's plans neither provide for routine maintenance of the vehicles sold nor require that all covered repairs be performed by Taxpayer does not transform such plans into personal service or insurance transactions.
Unlike the typical insurance policy which protects against loss or damage to property occasioned by some peril external and unrelated to defects in the property itself, extended mechanical breakdown plans, like Taxpayers, provide protection only for such defects in the property. See State ex rel. Duffy v. Western Auto Co., 134 Oh. St. 163, 16 NE2d 256 (1938).
Therefore, based on all of the above, I find no legal basis to grant the relief requested by Taxpayer, and the application for the correction of the audit assessment is hereby denied.
Sincerely,
W. H. Forst
Tax Commissioner
Dear ****
This will reply to your application of December 28, 1984, on behalf of * * * (Taxpayer) doing business as * * * requesting relief from an assessment of sales tax.
FACTS
Taxpayer, an automobile dealer, in connection with its sales of new and used cars, offers for sale a variety of mechanical breakdown protection plans, which vary in coverage depending on the age or mileage of the vehicle sold, and the amount of "deductibles' the purchaser must pay.
One of such plans, known as "the mechanic' is underwritten and administered by * * *, an affiliate of * * *, of * * *. Neither of these companies is registered with the Virginia Bureau of Insurance.
The lump sum coverage purchased under the various plans is limited to mechanical breakdowns of specified parts, and provides for each such covered breakdown, repair parts and labor free of charge, (subject to the deductibles) plus specified amounts for towing, emergency road service and rental of a substitute vehicle.
When Taxpayer makes a repair to a covered vehicle under one of the plans, it charges the underwriter the costs (to the extent they exceed the deductible) of all parts and labor. Taxpayer pays Virginia sales tax on the purchase of repair parts, and then passes such tax on to the underwriter. Therefore, taxpayer has not collected sales tax on the total purchase price of the mechanical breakdown plans.
Taxpayer argues that its sales of mechanical breakdown protection plans should not be subject to sales tax because such sales represent sales of insurance and not sales of tangible personal property and services. Concurrently, Taxpayer argues that if such sales are determined to be sales of tangible personal property, they should be exempt from sales taxation under § 58-441.6(a) now § 58.1-608(2) of the Virginia Code.
DETERMINATION
§ 58.1-608(2) of the Virginia Code, exempts from the sales and use tax:
- "Professional, insurance, or personal service 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.'
Secs. 58.1-602(14) and 58.1-603 of the Virginia Code impose a sales tax on all retail sales in the state. The term "retail sales' or "sales at retail' mean sales "to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter.' § 58.1-602(17) defines "sales price' as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . [but does] not include (i) any cash discount allowed and taken, [or] (ii) any amount separately charged for labor or services rendered in installing, applying, or remodeling or repairing property sold.
The sale of the mechanical breakdown plans by Taxpayer represents the sale of tangible personal property in the form of repair parts. The total sales price of such agreements is therefore subject to the tax, notwithstanding the fact that a portion of such price represents the cost of labor and other services, since the charge for such services cannot be separately stated at the time the agreement is sold.
Furthermore, the fact that Taxpayer's plans neither provide for routine maintenance of the vehicles sold nor require that all covered repairs be performed by Taxpayer does not transform such plans into personal service or insurance transactions.
Unlike the typical insurance policy which protects against loss or damage to property occasioned by some peril external and unrelated to defects in the property itself, extended mechanical breakdown plans, like Taxpayers, provide protection only for such defects in the property. See State ex rel. Duffy v. Western Auto Co., 134 Oh. St. 163, 16 NE2d 256 (1938).
Therefore, based on all of the above, I find no legal basis to grant the relief requested by Taxpayer, and the application for the correction of the audit assessment is hereby denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner