How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask MequonCPA Your Own Question
MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
5142404
Type Your Tax Question Here...
MequonCPA is online now
A new question is answered every 9 seconds

Are service contracts taxable

This answer was rated:

An extended warranty listed as service contract taxable?

 

Dear kxhv8nm6 -

 

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

MequonCPA and 4 other Tax Specialists are ready to help you
Customer: replied 6 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?

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
<table border="0" cellspacing="0" cellpadding="0">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 6 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.

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 and 4 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Thanks so much! That was very helpful. I've been looking all over.
Thanks for the accept. Glad I could help.