Georgia Issues Letter Ruling on the Taxability of Warranties, Repairs, and Parts

Posted by Michael Radvansky - July 26, 2016 - Newsletter - No Comments

A letter ruling clarifies the Georgia Department of Revenue’s position on the taxability of warranty sales, deductibles, and use of repair parts in warranty work.

The taxability of repair parts and deductibles are contingent on tax having been paid on the original warranty

Manufacturer’s Warranties, which are typically included in the sales price of tangible property, are considered a taxable component of the retail sales price.  Thus, the seller of tangible property (i.e. the Taxpayer) would not be liable for sales or use tax on parts that the Taxpayer uses in future warranty repairs.

Future deductible charges on warranties with previously paid tax are considered taxable.

Parts used to service Optional, Extended Warranties or Maintenance Agreements that were originally non-taxed are taxable.  The Taxpayer is liable for sales or use tax on cost price of the parts the Taxpayer uses in future warranty repairs.

Parts withdrawn from inventory to perform non-warranty Repair Services are taxable and sales tax must be charged to the customer.  Any separately stated labor charges would be exempt from sale tax.

Future deductible charges on warranties without previously paid tax would be considered non-taxable.

Reference:

Georgia Letter Ruling: LR SUT-2016-08

http://dor.georgia.gov/sites/dor.georgia.gov/files/related_files/document/LATP/Letter%20Ruling/LR%20SUT-2016-08.pdf