When an equipment manufacturer's finance arm sells extended-warranty service contracts (CVAs) through independent equipment dealers, is the dealer responsible for collecting Texas sales tax on those contracts?

Plain-English summary

A finance subsidiary of a heavy-equipment manufacturer (construction/mining machinery, locomotives, engines, turbines) sells "customer value agreements" (CVAs) — extended-warranty-style contracts covering equipment component failures, future parts purchases for DIY repairs, and equipment monitoring. Independent dealers sell the manufacturer's equipment and also list CVAs as a line item on the sales invoice, even though the CVA contract itself is legally between the finance subsidiary and the customer, not the dealer. The Comptroller was asked who's responsible for collecting sales tax on the CVAs.

Texas taxes "extended warranty or service policy" contracts — agreements that extend a manufacturer's warranty or provide a warranty on top of/in place of it — as a form of the taxable repair-and-maintenance service category. CVAs fit that definition, so their sale is taxable regardless of who's writing the check.

The twist is who has to collect that tax. Texas's "marketplace provider" rules (originally built for things like online marketplaces) sweep in a dealer's physical sales location too: because the dealer invoices the customer and processes the CVA payment at its location — even though the CVA contract is really with the finance subsidiary — the dealer counts as operating a "marketplace" and processing payments for a seller (the finance subsidiary), which makes the dealer a marketplace provider. That means the dealer must collect and remit the tax on CVA sales at its own location, and must certify to the finance subsidiary that it's doing so. If a dealer does certify, the finance subsidiary leaves those sales off its own return; if a dealer doesn't certify (or a CVA is sold through some other channel, not via a dealer), the finance subsidiary itself remains on the hook to collect and remit.

What this means for you

Equipment dealers selling manufacturer warranty products

If you invoice customers and collect payment for a warranty, service, or protection-plan product that's contractually between the customer and a manufacturer or its finance arm (not you), you may still be the party legally responsible for collecting Texas sales tax on that product — because processing the payment at your location makes you a "marketplace provider," even for a product you don't own.

Manufacturers and finance subsidiaries selling through dealer networks

Get dealer certifications in writing before assuming your dealer network is handling sales-tax collection on products sold through their invoices. Without a dealer's certification, you remain responsible for collecting and remitting tax on those sales yourself, and duplicative reporting (or gaps) can result from not tracking which dealers have certified.

Accountants and tax professionals

This is a good illustration of how broadly Texas's marketplace-provider definition reaches — it isn't limited to online marketplaces or software platforms. Any physical location where a third party's product is invoiced and paid for can trigger marketplace-provider status, with real tax-collection consequences that shift from the product owner to the location operator absent a certification.

Common questions

Q: Does this change whether CVAs are taxable at all?
A: No — CVAs are taxable extended warranty contracts either way. The only question this ruling resolves is which party (dealer or finance subsidiary) is responsible for collecting and remitting that tax.

Q: What if a CVA is sold directly by the finance subsidiary, not through a dealer?
A: Then the finance subsidiary itself must collect and remit the tax, since no dealer is acting as a marketplace provider for that sale.

Q: Does this ruling apply to other manufacturer/dealer warranty arrangements?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. Other manufacturer-dealer arrangements should confirm their own invoicing and payment-processing structure with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.0101(5) (repair and maintenance services)
• Tex. Tax Code § 151.008(b)(7) (marketplace providers included in "seller"/"retailer")
• Tex. Tax Code § 151.0242 (Marketplace Providers and Marketplace Sellers)
• 34 Tex. Admin. Code § 3.292(a)(4), (d)(2) (extended warranty/service policy — definition and taxability)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202410006L

Original ruling text

October 7, 2024

RE: Private Letter Ruling No. PLR20221004155633

Dear **,

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.1 We are responding to your request dated Sept. 22, 2022, and supplemental information received Oct. 17, 2022. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the tax implications for agreements between ** (Taxpayer) and equipment dealerships (Dealers).

Facts Presented

Taxpayer is a subsidiary and financial products division of COMPANY A, (Manufacturer) a manufacturer of construction and mining equipment, diesel-electric locomotives, gas engines, and turbines. Dealers sell Manufacturer’s equipment directly to customers. To help customers maintain their equipment, Taxpayer offers a product called a customer value agreement (CVA). CVAs are warranties for new, used, or aftermarket purchases of Manufacturer’s equipment.

CVAs provide customers:

an equipment protection plan that covers failures of certain equipment components

the current purchase of parts for future delivery for “do it yourself repairs” and

monitoring to track items such as machine hours and equipment fluid health.

CVAs do not include:

labor costs for installation of parts covered by a CVA or

consumables necessary for installation.

Dealers will list CVAs as a separate line item on an invoice for the purchase of equipment. While CVAs are offered and sold by Dealers, CVAs are a contractual agreement between Taxpayer and equipment customers. All repairs covered by CVAs are required to be performed by Dealers. The labor charges for repairs performed with parts covered by CVAs are a separate charge invoiced by and paid to Dealers. Taxpayer and Dealers hold Texas sales and use tax permits.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question One: Is a Dealer a marketplace provider for purposes of selling the CVAs?

Ruling One: Yes. A Dealer that invoices and processes payments for CVAs sold at its location is a marketplace provider and is responsible for collecting and remitting Texas sales and use tax on the sale of CVAs.

Analysis One: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). Section 151.010 (Taxable Item) defines a taxable item to include tangible personal property and taxable services.

The repair and maintenance of tangible personal property is included in the list of taxable services under Section 151.0101(5) (Taxable Services). Under Rule 3.292(a)(4) (Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property) an “extended warranty or service policy” is a contract sold to the purchaser or owner of tangible personal property that extends the terms of the manufacturer's written warranty or provides a warranty in addition to or in place of the manufacturer's written warranty for that property.

The sale of an extended warranty or service policy is taxable. See Rule 3.292(d)(2). CVAs provide equipment protection and parts for equipment sold by Dealers. CVAs meet the definition of an extended warranty or service contract under Rule 3.292(a)(4). The sale of CVAs is therefore taxable under Rule 3.292(d)(2).

A “seller” is a person engaged in the business of making sales of taxable items of a kind the receipts from the sale of which are included in the measure of the sales or use tax imposed by this chapter. Section 151.008 (Seller or Retailer). Marketplace providers are included in the definition of “seller” or “retailer” under Section 151.008(b)(7).

A “marketplace” means a physical or electronic medium through which persons other than the owner or operator of the medium make sales of taxable items. The term includes a store, Internet website, software application, or catalog. Section 151.0242(a)(1). A “marketplace provider” means a person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers. Section 151.0242(a)(2). A marketplace provider is responsible for collecting and remitting sales and use tax for sales made on the marketplace. Section 151.0242(b), (c). A “marketplace seller” means a seller, other than the marketplace provider, who makes a sale of a taxable item through a marketplace. Section 151.0242(a)(3).

A Dealer’s location where Taxpayer sells taxable CVAs is a physical medium operated by the Dealer that meets the definition of a marketplace under Section 151.0242(a)(1). A Dealer that receives CVA payments from customers is processing payments for Taxpayer as described by Section 151.0242(a)(2). Dealers that invoice customers and receive payments for CVAs sold at their locations are marketplace providers under Section 151.0242(a)(2).

As a marketplace provider, a Dealer has the rights and duties of a seller with respect to sales made through its marketplace. A Dealer is responsible for collecting and remitting on sales of CVAs at its location. Dealers acting as marketplace providers must certify to Taxpayer that they are responsible for reporting and remitting taxes imposed on all sales made through their locations. Section 151.0242(b), (c).

When filing its own Texas sales and use tax returns, Taxpayer should exclude sales of CVAs made through Dealers that have certified they are collecting and remitting tax on Taxpayer’s behalf. Section 151.0242(d). Taxpayer is required to collect and remit Texas sales and use tax on its sales of CVAs if a Dealer has not certified that it will collect and remit on sales made at a Dealer’s location. Taxpayer is also required to collect and remit tax on its sales of CVAs that are not made through a Dealer’s marketplace.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR 20221004155633.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1 Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.