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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
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Are service contracts taxable

Resolved Question:

An extended warranty listed as service contract taxable?
Submitted: 4 years ago.
Category: Tax
Expert:  MequonCPA replied 4 years ago.

 

Dear kxhv8nm6 -

 

Yes, the service contract is subject to sales tax. Essentially it replaces repair fees that would have been taxable.

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and 2 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Ok so it applies under this?

"maintenance contracts, the terms of which provide for both repair or replacement parts and repair labor, shall be subject to tax upon one-half of the total charge for such contracts only."

So it is only taxed for 1/2 of the total price? If it's for a vehicle does the motor vehicle sales & use tax apply or the general sales tax?
Expert:  MequonCPA replied 4 years ago.

Dear kxhv8nm6 -

 

The exented warranty on vehicles is taxed as any other taxable item at the standard tax rate. See ruling included below.

 

Rulings of the Tax Commissioner

Document Number: 87-174
Tax Type:Retail Sales and Use Tax
Brief Description:Motor vehicle service contracts
Topics:Exemptions; Taxability of Persons and Transactions
Date Issued:02/25/1987
February 25, 1987




Re: §58.1-1821 Application/ Sales and Use Tax


Dear******************

This refers to my determination letter dated March 14. 1986 to ********** ("taxpayer"), in the above referenced case.

Based on information recently received from the State Corporation Commission's Bureau of Insurance, it has been determined that a portion of my March 14 determination letter was incorrect when issued. According to the Bureau of Insurance, none of the vehicle service contracts issued by the taxpayer through the companies mentioned in the March 14 letter, represent contracts of insurance subject to regulation by the State Corporation Commission.

This is true, according to the Bureau of Insurance. since when a seller, dealer, or manufacturer is identified in a vehicle service contract as the party guaranteeing against the specified breakdowns, such seller, dealer or manufacturer is generally not required to be licensed with the Bureau, notwithstanding that such contract may be issued through an insurance agent or underwritten by an insurance company which is licensed with the Bureau.

Therefore, to the extent that the March 14 letter stated that vehicle service contracts issued by the taxpayer through either ******** Corporation or ***********Company qualified for exemption from the tax, it is hereby rescinded.

Accordingly, effective March 1, 1987. the sales price of vehicle service contracts issued by the taxpayer through any of the companies named in my March 14, 1986 letter. is subject to Virginia's retail sales and use tax, (currently at a rate of four and one-half percent), at the time of sale to customers, and the taxpayer should report such tax collected to the department in filing its monthly retail sales and use tax return.

In addition. based on the taxpayer's good faith reliance on my March 19, 1986 letter, those vehicle service contracts issued by the taxpayer through either********** Corporation or ******************* Company between the dates of March 14, 1986 and February 28, 1987 will not be deemed subject to the tax. However. contracts sold on or after March 1. 1987 will be subject to the tax and audited as such in future audits.

I regret any inconvenience which may be occasioned by this correction to my March 14, 1986 letter.

Sincerely,


W. H. Forst
Tax Commissioner

 

Customer: replied 4 years ago.
Yeah that was in 1987. I'm looking at: Virginia Code § 58.1-609.5. Service exemptions. #9 states:

9. Beginning January 1, 1996, maintenance contracts, the terms of which provide for both repair or replacement parts and repair labor, shall be subject to tax upon one-half of the total charge for such contracts only. Persons providing maintenance pursuant to such a contract may purchase repair or replacement parts under a resale certificate of exemption. Warranty plans issued by an insurance company, which constitute insurance transactions, are subject to the provisions of subdivision 1 above.
Expert:  MequonCPA replied 4 years ago.

Per a Q&A on the VA DMV site see item 13. Per the site, 1/2 of the contract price is subject to tax if it covers parts and labor.

 

http://www.dmv.state.va.us/webdoc/commercial/dealer/study10.asp

 

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and 2 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thanks so much! That was very helpful. I've been looking all over.
Expert:  MequonCPA replied 4 years ago.
Thanks for the accept. Glad I could help.

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