How did South Carolina change the tax treatment of warranty and maintenance contracts effective September 1, 2011?

Plain-English summary

South Carolina Revenue Ruling 11-1 announced a statutory change to warranty and maintenance contracts effective September 1, 2011.

A contract purchased at the same time as tangible personal property remained taxable when the property was taxable. If the underlying property sale was exempt, the simultaneously purchased warranty or maintenance contract was also exempt under the rule described.

A contract purchased after the property purchase was generally no longer subject to sales and use tax, although the ruling noted limited exceptions without describing them.

What changed

Act No. 32 of 2011 returned warranty and maintenance contract treatment, including withdrawals of repair parts under those contracts, to the approach used before October 1, 2005.

The Department reinstated SC Revenue Ruling #93-6 for extended warranty sales occurring on or after September 1, 2011. The reinstated RR #93-6 replaced SC Revenue Ruling #06-9.

Practical timing rule

The short ruling makes the contract's purchase timing central:

• bought with taxable property: taxable;
• bought with exempt property: exempt under the stated rule; and
• bought later: generally nontaxable, subject to limited exceptions.

Because RR 11-1 does not identify every exception or reproduce RR 93-6, sellers should not use this page alone to classify a particular service plan.

Common questions

Q: Was every warranty contract exempt after September 1, 2011?

A: No. A contract purchased with taxable property remained taxable.

Q: What about a warranty purchased months after the product?

A: The ruling says a later-purchased contract was generally nontaxable, with limited exceptions.

Q: Which earlier guidance controlled after the change?

A: The Department reinstated RR #93-6 and stated that it superseded RR #06-9.

Citations and references

• South Carolina Act No. 32 of 2011 — statutory change described by the ruling
• Chapter 36 of Title 12, S.C. Code — sales and use tax law referenced by the ruling
• SC Revenue Ruling #93-6 — reinstated extended-warranty guidance
• SC Revenue Ruling #06-9 — superseded guidance

Subject

Warranty and Maintenance Contracts

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR11-1.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #11-1

SUBJECT:

Warranty and Maintenance Contracts
(Sales & Use Tax)

EFFECTIVE DATE:

September 1, 2011

SUPERSEDES:

SC Revenue Ruling #06-9

REINSTATES:

SC Revenue Ruling #93-6

REFERENCES:

Chapter 36 of Title 12 (2000 and Supp. 2010)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2010)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is an advisory opinion issued to apply
principles of tax law to a set of facts or general category of taxpayers. It
is the Department’s position until superseded or modified by a change in
statute, regulation, court decision, or another Departmental advisory
opinion.

Act No. 32 of 2011 amends the application of the sales and use tax to warranty or maintenance
contracts effective September 1, 2011. The changes that are effective September 1, 2011, amend
the sales and use tax law so that the application of the tax to warranty or maintenance contracts,
and to the withdrawals of parts to fix a defective product under these contracts, will be the same
as it was prior to October 1, 2005.
The statute continues to tax the sale of a warranty or maintenance contract purchased at the same
time the tangible personal property is purchased, unless the sale of the tangible personal property
is exempt from the tax. However, with limited exceptions, the sales and use tax will no longer
apply to a warranty or maintenance contract purchased after the tangible personal property is
purchased.

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Based on this change in the law, SC Revenue Ruling #93-6, concerning “Extended Warranties,”
has been reinstated and is effective for all sales of extended warranty contracts occurring on or
after September 1, 2011. SC Revenue Ruling #93-6, as reinstated effective September 1, 2011,
now supersedes SC Revenue Ruling #06-9.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/James F. Etter
James F. Etter, Director
November 9
, 2011
Columbia, South Carolina

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