Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
315.0000 INSTALLING, REPAIRING, RECONDITIONING IN GENERAL—Regulation 1546
(a) IN GENERAL
315.0209 Optional Repair Warranties. A manufacturer of service station equipment sells optional warranty policies to purchasers of its equipment. It contracts with an independent repair facility to make repairs under the warranties. The manufacturer manufactures all repair parts. The repair facility purchases repair parts for inventory from the manufacturer. The value of repair parts and materials used on repair jobs exceeds 10 percent of total charge.
In some cases, the repairer takes items from its own stock to make repairs. Upon completion of the repairs, the manufacturer replaces the parts without charge to the repairer. In other cases, the manufacturer provides parts directly so that the repairer does not have to remove parts from its inventory. In still other cases, the repairer purchases parts from a distributor. The distributor gives full credit for the purchased parts when defective parts are returned.
Since the warranty policies are optional, the manufacturer is the consumer of the repair parts and materials. When the repairer furnishes parts which it purchases in a repair operation, there is a retail sale to the manufacturer even though the manufacturer replaces the parts or the distributor accepts defective parts as payment. The definition of "sale" includes barter. Tax applies to the retail selling price of the parts. If the manufacturer provides parts directly (the repairer is installing parts owned by the manufacturer), tax applies to the raw material cost of the parts. 2/18/94.