Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
290.0000 GOODS DAMAGED IN TRANSIT—REGULATION 1629
290.0031 Goods Damaged in Transit. A firm purchases two electric motors which are damaged in transit from an out-of-state vendor. The motors are returned to the vendor for repairs. The vendor bills the purchaser for labor and materials on the repair plus the applicable tax. The purchaser then files a claim for the repairs against the freight company.
In this situation, tax is properly included in the claim against the carrier since it is part of the sales price of the materials used in repairing the damaged goods and tax is due on the sales price of the parts. The repair transaction is separate and distinct from the original sale or purchase.
As to goods damaged in transit which are accepted by the purchaser in their damaged condition, the transaction is a use tax transaction (i.e., the sale occurs outside the state). Accordingly, the correct measure of tax on this transaction is the fair retail value of the goods in their damaged condition. It should be noted that the amount of tax paid on materials for the repair is not necessarily equivalent to the goods in their damaged condition. 5/29/64.