How were manufacturer warranties, extended warranties, repair parts and services, and mixed maintenance contracts taxed under Connecticut Ruling 89-152?

Note -- obsolete historical guidance. DRS marks this information "not current" and states that Policy Statement (PS) 94(2) obsoleted the ruling. The ruling also partly superseded Special Notice LSN-92.

Plain-English summary

An original manufacturer's warranty included in the price of new property produced no tax on covered repair service or parts, whether or not the manufacturer was charged.

Under a separately purchased extended warranty, repair or maintenance service and repair parts were taxable, including work by a third-party repairer for the warrantor. The extended-warranty contract itself was not taxable.

If parts were used without a separate charge, the user owed use tax on them. If repair service was provided without charge, no sales or use tax applied to the service. A contract covering both maintenance and warranty service was fully taxable unless the warranty portion was clearly allocated; with allocation, only the maintenance-service portion was taxable.

What this means for you

The historical ruling treated the warranty type and pricing structure as decisive. PS 94(2) later obsoleted it.

Common questions

Were manufacturer-warranty repairs and parts taxable? No.

Were extended-warranty repairs and parts taxable? Yes.

Was the extended-warranty contract itself taxable? No under the ruling.

What if parts were supplied without charge? The user owed use tax.

What if service was supplied without charge? No tax applied to the service.

How were mixed maintenance-and-warranty contracts treated? Fully taxable unless the warranty portion was clearly allocated.

Citations and references

• Special Notice LSN-92 -- partly superseded by this ruling for third-party repairer parts and warranty work.
• Policy Statement (PS) 94(2) -- identified by DRS as obsoleting this ruling.

Source

• Landing page: Connecticut DRS Rulings
• Ruling: Ruling 89-152

Original ruling text

Ruling 89-152, Warranty

This information is not current and is being provided for reference purposes only

Ruling 89-152

Warranty

This Ruling has been obsoleted by   PS 94(2)

This letter is to advise you of the Department of Revenue Services' position on the applicability of sales and use taxes to warranty repairs and warranty parts.

For the purposes of this policy, the Department has divided warranties into two categories: (1) original purchase manufacturer's warranties and (2) extended warranties.

A manufacturer's warranty is deemed to be the explicit warranty which the manufacturer extends to the purchaser as part of the purchase price of new property.

An extended warranty is a warranty that a buyer purchases at the time of purchase of an item of personal property for a separate purchase price. It is usually in addition to and subsequent in time to the manufacturer's warranty. It is sometimes referred to as an extended service contract.

The following rules will apply to the respective warranties:

A. Manufacturer's Warranty:

No sales or use tax on service provided to an item under warranty (whether or not the manufacturer is charged for such service).

No sales or use tax on parts used to repair an item under warranty (whether or not the manufacturer is charged for such parts).

B. Extended Warranty:

Sales or use tax applies to repair or maintenance service to an item under an extended warranty.

Sales or use tax applies to parts used to repair an item under an extended warranty.

The sales tax on services and parts applies to the service performed or parts used by a third-party repairer performing said repairs for the warrantor under an extended warranty.

There is no sales tax applicable to the sale or purchase of an extended warranty contract.

Where parts are used to fulfill an extended warranty contract and where no separate charge is made for said parts, the person using said parts shall pay a use tax on those parts.

Where repair service is provided to fulfill an extended warranty contract and where the person providing such service makes no charge for said service, no sales or use tax shall apply to such service.

Where an extended warranty provides for both maintenance service and warranty service, the gross receipts from the sale of such contracts are fully taxable unless there is a clear allocation of the contract price for the warranty portion. If there is an allocation, only the maintenance service portion is taxable.

This letter supersedes, in part, the Special Notice on Maintenance, Repair and Warranty Contracts [LSN-92] and replaces that portion relating to parts and warranty work performed by a third-party repairer.

TIMOTHY F. BANNON

COMMISSIONER

November 16, 1989