Tax Type
Retail Sales and Use Tax
Description
Roof maintenance contract
Topic
Taxability of Persons and Transactions
Date Issued
11-24-1987
November 24, 1987
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ******************
This will reply to your letter of July 15, 1987, on behalf of ********* (taxpayer) seeking correction of an assessment issued by the department for the period January 1, 1984 through October 31, 1986.
FACTS
The taxpayer is engaged in the business of repairing and installing commercial and residential roofing. In this connection the taxpayer offers at no additional charge to its customers a limited warranty on all of the work which it performs. At its customers option however, and for an additional sum, extended coverage may be purchased from the taxpayer's roof material manufacturers. As a service to its customers, the taxpayer collects the additional amount charged for the extended coverage and pays this amount over to the applicable manufacturer. After payment of this amount to the manufacturer, the extended warranty contract is issued directly by the manufacturer to the taxpayer's customer.
As a result of a recent department audit the taxpayer was held liable for the use tax on all amounts which it collected from its customers and paid over to its manufacturers for the extended roof warranty coverage. The taxpayer seeks correction of the assessment for all such amounts paid to its manufacturers.
DETERMINATION
Subsection (D) of Virginia Retail Sales and Use Tax Regulation 630-10-62.1 imposes the tax on "maintenance contracts, the terms of which provide both repair or replacement parts and repair labor.." However, subsection (A) of this same regulation provides that "maintenance contract" means any agreement whereby a person agrees to maintain and/or repair an item of tangible personal property over a specified period of time for a fee which is determined at the time the agreement is entered into." (Emphasis added)
While the manufacturer's warranties described in this case provide for repair or replacement materials and/or repair labor, they do not provide for the repair or maintenance of items of tangible personal property. This is because as soon as the roofing materials are installed by the taxpayer, they become a part of realty. Therefore, any repairs or replacement materials provided by the taxpayer pursuant to such manufacturer's warranties after installation, represent repairs to realty.
Furthermore, the use tax should not have been assessed on the amounts paid by the taxpayer as extended warranties to the manufacturers, since such amounts were not included in the sale price of the roofing materials purchased by the taxpayer from its manufacturers.
Accordingly, the assessment will be adjusted in this case to remove the amounts paid by the taxpayer on behalf of its customers for manufacturer's warranties.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner