Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2016
Sales and Use Tax Annotations
490.0000 RETURNS, DEFECTS AND REPLACEMENTS—Regulation 1655
(1) In General
490.0530 Road Hazard Warranties—Tires. A tire retailer has an optional road hazard warranty on new tires. This warranty only covers road hazards such as running over a piece of glass and has nothing to do with defects in the materials. When a customer comes in with a road hazard claim, the amount charged the customer would be a pro-rated amount based on the remaining percentage of tread left on the old tire. If the tire can be repaired, it would be repaired without cost to the customer.
Since the warranty is optional, the retailer is the consumer of parts and materials furnished in the performance of the warranty, and sales or use tax applies to the sale of such items to the retailer, or to the use of such property. Thus, when the retailer provides its customer with a new tire under the optional warranty, the retailer must report and pay use tax on the cost of that portion of the tire covered by the warranty and report the pro-rata charge to its customer as a taxable sale. 2/6/95.