Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2014
 

Sales and Use Tax Annotations


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R

490.0000 RETURNS, DEFECTS AND REPLACEMENTS—Regulation 1655

Annotation 490.0477

(b) REPLACEMENTS GENERALLY—MAINTENANCE CONTRACTS

490.0477 Optional Service Contract—Replacement Units. Under an optional service contract, a firm provides next day delivery of a replacement unit for any failed equipment. The repair shop is located outside of California. The replacement unit becomes the customer's property and the customer's unit becomes the firm's property. The unit which is replaced is repaired and becomes part of the replacement inventory. If the unit replaced is not found defective, the customer is charged. The division providing the replacements is located outside of California. The contract falls within the purview of Regulation 1546(b)(3)(C). The firm is the consumer of property used to fulfill its obligations under the contract. Since the firm completes its obligation under the contract when the replacement unit is delivered to the carrier the "use" occurs outside of California. Since no use occurs in California, no use tax is due.

If the unit is not defective and a charge is made, the firm must collect use tax on exchange units shipped to California. 8/5/88.