Extended Warranties Are Taxable When They Are Not Separate From Repairs

Tuesday, December 16th, 2014

Yellow mining trucks.

The Wyoming State Board of Equalization ruled that warranty contracts are taxable when the costs of the services provided under the contract are not separate and distinct from the cost of the contract.

The taxpayer was a mining company that contracted with a maintenance company to repair and maintain a fleet of mining trucks. The taxpayer made monthly payments based on the number of hours each truck was used each month. Any repairs or replacements not covered by the contract were paid for separately by the taxpayer. The taxpayer applied for a refund of tax paid on the costs of the contract, but the Department of Revenue denied the refund.

In Wyoming, repair labor and materials are taxable. A warranty is an agreement that states that the product provided is free of defects or will be repaired or replaced free of charge if the product fails. An extended warranty is an additional warranty that covers repair costs or a period not covered by the standard warranty. The sale of an extended warranty, service, and maintenance contract ("extended warranty") is not taxable only if (1) the contract is sold separately from the property it covers and (2) the cost of the contract is separate and distinguishable from the cost of repairs to the property.

The contract in this case failed the second part of the extended warranty test. The taxpayer paid for the contract based on the cost of the repair services provided. The taxpayer did not buy the contract and then receive free repairs. Because the costs were not separate and distinguishable, the contract was taxable.


About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

Economic Nexus in Washington

Monday, August 13th, 2018 -Effective October 1, 2018, certain out-of-state businesses will be required to collect and pay Washington sale...

Economic Nexus in Michigan

Thursday, August 9th, 2018 -Effective October 1, 2018, certain out-of-state sellers will be required to collect and pay Michigan sales or ...

Georgia Suspends Tax on Jet Fuel

Wednesday, August 8th, 2018 -Effective August 1, 2018, Georgia no longer collects state level sales and use tax on jet fuel. Georgia tax...

Employment Services Contracts for Permanent Employees Not...

Monday, August 6th, 2018 -The Ohio Board of Tax Appeals recently addressed whether contracts entered into by an employment services agen...

Alarm Systems and Monitoring Not Taxable in Missouri

Wednesday, August 1st, 2018 -The Missouri Department of Revenue recently released a ruling determining that (1) security, fire, tornado, an...

Economic Nexus in Utah

Wednesday, August 1st, 2018 -Effective January 1, 2019, certain out-of-state sellers will be required to collect and pay Utah sales or use ...