Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales and Use Tax Annotations
315.0000 INSTALLING, REPAIRING, RECONDITIONING IN GENERAL—Regulation 1546
(c) MISCELLANEOUS REPAIRS
315.0768 Service/Supply Kits. A company that sells photocopy machines and related services and supplies also sells an optional service/supply kit. The kit is optional when sold with the copier and the customer can buy additional kits at a later time. The kit consists of all the service and supplies, except paper, that is necessary to run the copier for a fixed number of copies. The amount of "service" required to maintain the machine for the required number of copies under the agreement is not determinable at the time the kit is purchased. Presumably, the "service" provided under the service/supply kit consists of the furnishing of labor and materials (i.e., parts) necessary to maintain the copier for the required number of copies.
The sale of the service/supply kit is a sale of both an optional maintenance service contract and tangible personal property for a lump-sum price. A charge for an optional maintenance contract is nontaxable. Where both taxable and nontaxable items are sold for a single price, an allocation must be made between the taxable and nontaxable charges. The fair retail selling price of the supplies initially furnished under the contract must be segregated on the invoices to the customer and in the records from the charges for the optional maintenance contract. Tax only applies to the fair market value of supplies initially furnished to the customers under the service/supply agreement. Since the company is considered the consumer of the parts and materials used in the maintenance contract to repair the copier, the sale of such items to the company for subsequent use in meeting its obligation under the maintenance contract is subject to tax. 5/1/84.