Tax Type
Retail Sales and Use Tax
Description
Deductible payments on automobile warranty contracts
Topic
Taxability of Persons and Transactions
Date Issued
07-26-1988
July 26, 1988
Re: Ruling Request/ Sales and Use Tax
Dear*****************
This will reply to your letter of May 24, 1988 seeking information on the correct application of the sales and use tax to transactions between*************** (taxpayer), and its customers.
FACTS
In connection with its business as an automobile dealer, the taxpayer often provides repairs to its customers vehicles, (including repair parts and labor), covered by the terms of an extended warranty plan previously sold by the taxpayer subject to the 4 1/2% sales tax. Accordingly, you ask whether when a customer comes in for repairs under such a plan and pays an applicable deductible amount, such as $25.00, what portion of the deductible amount, if any is taxable.
RULING
In a November 30, 1987 ruling of the department, a copy of which is enclosed, it was determined that amounts paid to a dealer to reimburse it for repair parts and labor provided under the terms of an extended warranty plan were not subject to the tax, provided the initial sale of the plan to the customer was subjected to tax. Since deductible amounts paid to a dealer at the time of providing covered repairs are also to reimburse the dealer for repair parts and labor provided pursuant to the terms of an extended warranty plan, such amounts are similarly nontaxable, provided the initial sale of the plan was subjected to tax.
I hope that this has responded to your questions, but let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner