NE 01-07-1 Sales and Use Tax 2007-04-16

Does Nebraska sales tax apply to the deductible a vehicle owner pays under a maintenance agreement or extended warranty?

Short answer: No. Revenue Ruling 01-07-1 concludes that a deductible amount a motor vehicle owner is required to pay under a vehicle maintenance agreement or extended warranty contract is not subject to Nebraska sales and use tax. However, if the maintenance agreement, extended warranty, or deductible does not cover repair parts -- or covers only a portion of them -- the additional amount charged to the vehicle owner for the parts used in the repair is taxable. The ruling supersedes Nebraska Sales and Use Tax Regulation 1-074.03A to the extent that regulation does not specifically address the taxability of deductibles related to motor vehicle repairs.

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This page answers the general question as of 2007. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

When you have a vehicle maintenance agreement or extended warranty and take the car in for a covered repair, you often pay a deductible out of pocket. This ruling answers whether Nebraska sales tax applies to that deductible.

The rule. A deductible you are required to pay under a vehicle maintenance agreement or extended warranty contract is not subject to Nebraska sales and use tax.

The important limit. If the agreement, warranty, or deductible does not cover the repair parts -- or covers only part of them -- then the additional amount charged to you for the parts used in the repair is taxable. In other words, the deductible itself is not taxed, but you still owe tax on any parts charges that fall outside the coverage.

Effect on the regulation. The ruling supersedes Nebraska Sales and Use Tax Regulation 1-074.03A to the extent that regulation does not specifically address the taxability of deductibles related to motor vehicle repairs.

What this means for you

Vehicle owners

The deductible you pay under a maintenance agreement or extended warranty is not taxed. But watch for parts that your coverage does not pay for -- any separate charge to you for those repair parts is subject to sales tax.

Repair shops and warranty administrators

Do not charge sales tax on the deductible portion of a covered maintenance-agreement or extended-warranty repair. Do charge tax on any parts amounts billed to the customer that the agreement or deductible does not cover.

Common questions

Q: Is my deductible taxable?
A: No. A deductible due under a vehicle maintenance agreement or extended warranty contract is not subject to Nebraska sales and use tax.

Q: What if my warranty doesn't fully cover the parts?
A: Any additional amount charged to you for the repair parts not covered by the agreement or deductible is taxable.

Citations and references

Nebraska Sales and Use Tax Regulation 1-074.03A -- superseded by this ruling to the extent it does not specifically address the taxability of deductibles related to motor vehicle repairs.

Source

Original ruling text

REVENUE RULING 1-07-1
April 16, 2007
Sales and Use Tax - Maintenance Agreement Deductible. THE PAYMENT OF A DEDUCTIBLE
BY THE OWNER OF A MOTOR VEHICLE PURSUANT TO A VEHICLE MAINTENANCE
AGREEMENT OR EXTENDED WARRANTY CONTRACT IS NOT SUBJECT TO SALES
AND USE TAX.
Advice has been requested regarding the application of sales and use tax to a deductible required to
be paid under a maintenance agreement or extended warranty contract covering a motor vehicle.
Any deductible amount that is due pursuant to a maintenance agreement or extended warranty
contract covering a motor vehicle is not taxable. If the maintenance agreement, extended warranty
contract, or deductible does not cover repair parts or only covers a portion of the parts, the
additional amount charged to the vehicle owner for the parts used in the repair of the motor vehicle
is taxable.
The provisions of Nebraska Sales and Use Tax Regulation 1-074.03A are superceded to the extent
the regulation does not speciﬁcally address the taxability of deductibles related to motor vehicle
repairs.
APPROVED:

Douglas A. Ewald
State Tax Commissioner
April 16, 2007

Nebraska Department of Revenue, P.O. Box 94818, Lincoln, Nebraska 68509-4818

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