Tax Type
Retail Sales and Use Tax
Description
Repairs under manufacturer's warranty
Topic
Taxability of Persons and Transactions
Date Issued
11-30-1987
November 30, 1987
Re: Ruling Request/ Sales and Use Tax
Dear ******************
This has reference to your letter of August 5, 1987 on behalf of *********** (taxpayer), seeking a ruling on the correct application of the sales and use tax to transactions involving the provision of repair parts and services pursuant to manufacturer's warranties.
FACTS
According to your letter, the taxpayer is engaged in the business of selling and installing truck body parts and equipment. All of the parts and equipment the taxpayer sells come with manufacturer's warranties, at no additional charge to its customers. In the past whenever any of these items has been returned to the taxpayer for warranty "covered" services, the taxpayer has provided the service at no charge to its customer. In addition, when seeking reimbursement from manufacturers for the repair parts and labor provided to its customers, the taxpayer has never charged the tax. However, the taxpayer has remitted use tax to the department based on the cost price of the repair parts used in providing the covered services.
Accordingly, you request a ruling whether the taxpayer has been reporting the tax correctly in making warranty covered repair services, or whether it may be due a refund for use tax previously paid in providing such services.
RULING
Virginia Retail Sales and Use Tax Regulation 630-10-1 provides that "[w]hen any taxable article is returned to the dealer for adjustment, replacement or exchange and the consumer is given a
new article free or at a reduced price under a warranty or guarantee, the sales or use tax must be computed on the actual additional amount, if any, paid to the dealer for the new article."
Under this provision, if the taxpayer in this case continues to make no charge to its customers in connection with manufacturer's warranty covered repairs, no tax will be due on such repairs. In addition, the taxpayer may continue to purchase repair parts for use in making such repairs pursuant to resale certificate of exemption and need not charge the tax to manufacturers when seeking reimbursement.
Of course, if the taxpayer sells any repair parts apart from its provision of manufacturer's warranty covered services, the total charge for such repair parts, together with any repair labor charges not separately stated, will be taxable.
Accordingly, to the extent that the taxpayer may have erroneously remitted the tax on repair parts provided to customers pursuant to manufacturer's warranties, it may seek a refund from the department at this time for such amounts. Of course, any refund requested is subject to the three year statute of limitations provided in §58.1-1823 of the Virginia Code. The refund request should be remitted together with a copy of this letter, and copies of all records maintained by the taxpayer showing the amount of use tax remitted for such items to the department's Taxpayer Assistance Section, Office Services Division, P.O. Box 6-L, Richmond, Virginia 23282.
I hope that the foregoing has responded to your questions, but let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner