Can an extended-warranty administrator give repair shops a resale certificate for warranty repair work it pays for, or must its retail clients do that?

Plain-English summary

Warrantech Corporation develops and markets extended warranty programs and administers them for retail vendors for a fee. When a vendor sells an extended warranty, the customer pays sales tax on the merchandise and the warranty; the vendor remits part of the warranty price to Warrantech, which insures the repair risk with an independent insurer. When a customer needs repairs, Warrantech designates a repair shop, authorizes the work, is billed by the shop, and pays from insurance funds. Warrantech asked whether it may give the repair shops resale certificates, or whether that is its retail clients' job.

The Department held Warrantech itself may issue the certificate, because the warranty repairs are purchased for resale:

• § 527.5(d) (warranty work): repair/maintenance rendered without charge to a customer under a warranty is not taxable; the vendor performing the warranty services may purchase for resale any tangible personal property transferred to the customer; and a manufacturer's (or, here, administrator's) reimbursement for warranty work is not taxable because it was for resale.
• § 541.1(g): payments by one contractor to another to perform warranty repairs of real or tangible personal property are not subject to tax.
• Result: the charges Warrantech pays repair shops for warranty work are not subject to sales tax, as the repairs are deemed purchased for resale. Therefore, provided Warrantech is registered as a New York sales-tax vendor, it may issue a Resale Certificate (Form ST-120) to the repair shops for warranty work performed on its behalf.

What this means for you

Warranty repairs you pay for are a purchase for resale

When you stand behind a warranty and pay a repair shop to do the covered work, you're not the taxable end user of that repair — you're reselling it (ultimately to the covered customer, at no separate charge). That makes the repair shop's charge to you a nontaxable purchase for resale, documented with a resale certificate.

The administrator can hold the resale certificate — if it's a registered vendor

The key practical answer: a warranty administrator that is registered as a New York sales-tax vendor can give repair shops its own ST-120 for warranty work it arranges and pays for. It doesn't have to route the certificate through the retail seller. Registration is the condition.

The customer already paid tax up front; the repair isn't taxed again

Because the customer paid sales tax on the merchandise and the extended warranty at purchase, the later warranty repair — provided at no charge to the customer — isn't taxed again. The resale mechanism prevents double taxation of the covered repair.

Common questions

Q: Are warranty repairs taxable in New York?
A: Repairs provided at no charge to the customer under a warranty are not taxable to the customer, and the party paying the repair shop can buy the repair for resale (§ 527.5(d)).

Q: Can a warranty administrator give the repair shop a resale certificate?
A: Yes, provided the administrator is registered as a New York sales-tax vendor. It may issue Form ST-120 for warranty work performed on its behalf.

Q: Is the money the administrator pays the shop taxable?
A: No. It is treated as a reimbursement for resale, which is not taxable (§§ 527.5(d), 541.1(g)).

Citations and references

Regulations:

• 20 NYCRR § 527.5(d) — warranty work: repairs under warranty are not taxable to the customer; the vendor may purchase for resale property transferred to the customer; reimbursement for warranty work is not taxable because it was for resale
• 20 NYCRR § 541.1(g) — payments by a contractor to another to perform guarantee/warranty repairs are not subject to tax
• Form ST-120, Resale Certificate

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_31s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (31)S
Sales Tax
April 4, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910304B

On March 4, 1991, a Petition for Advisory Opinion was received from Warrantech
Corporation, 300 Atlantic Street, Stamford, CT 06901.
The issue raised by Petitioner, Warrantech Corporation, is whether is may issue resale
certificates to repair shops that perform warranty work, or if it is the responsibility of its clients to
issue such certificates.
Petitioner develops and markets extended warranty programs. It enters into agreements with
retail vendors to administer warranty programs for them. Pursuant to such agreements, Petitioner is
paid a set fee by retail vendors to act as administrator of warranties for merchandise sold by the
vendor. When a retail vendor sells an extended warranty on merchandise, sales tax is paid on the
purchase price of the merchandise and on the extended warranty by the customer to the vendor. The
vendor then remits a portion of the amount that it has received from the customer for the extended
warranty to the Petitioner. Petitioner contracts with an independent insurance company to insure
against costs incurred for repairs to merchandise under warranty.
When repair work is required, a customer notifies Petitioner, who in turn, designates the
repair shop where merchandise should be taken. Petitioner authorizes the repair shop to make the
needed repairs. Petitioner is billed for the repair work by the repair shop. Petitioner pays for the
repair work from funds received from insurance company designated to pay such claims.
Section 527.5(d) of the Sales and Use Tax Regulations provides as follows:
(d)
(1)
(2)

(3)
(4)

Warranty work
Repair or maintenance services rendered, without charge to a customer under
a warranty agreement are not taxable.
The vendor performing the warranty services may purchase for resale any
tangible personal property which is transferred to his customer in connection
with the services rendered.
Charges for services rendered which are not covered by the warranty are
taxable.
Where a manufacturer reimburses a vendor or repairman performing warranty
work, the reimbursement is not taxable, as it was for resale.

Section 541.1(g) of the Sales and Use Tax Regulations provides as follows:
(g)
Guarantee and warranty work
(1)
Payments by a contractor to another contractor to perform maintenance,
service or repair of real and tangible personal property when purchased to fulfill a
guarantee or warranty are not subject to tax. (emphasis added)

-2­
TSB-A-91 (31)S
Sales Tax
April 4, 1991

Accordingly, pursuant to Sections 527.5(d) and 541.1(g) of the Sales and Use Tax
Regulations, the charges paid by Petitioner to repair shops for performing warranty work are not
subject to sales tax, as the repairs are deemed to be purchased for resale. Therefore, provided
Petitioner is registered as a vendor for New York State sales tax purposes, Petitioner may issue a
Resale Certificate, (Form ST-120), to repair shops for warranty work performed on its behalf.

DATED: April 4, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.