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Definition
A maintenance agreement (contract), sometimes called a service agreement (contract), is an agreement which requires specific performance of repairing, cleaning, altering, or improving tangible personal property on a regular or irregular basis to ensure the product's continued satisfactory operation.
Manufacturer's maintenance agreement included in price
A manufacturer's maintenance agreement included in the sales price of a vehicle is subject to the Retailing B&O and retail sales taxes, including the additional motor vehicle sales and lease tax of three-tenths of one percent (0.3%)
Maintenance agreements sold by dealer or third party
A separate charge for a maintenance agreement is a retail sales subject to the Retailing B&O tax and retail sales tax. In addition, these types of maintenance agreements are not subject to the additional motor vehicle sales and lease tax of three-tenths of one percent (0.3%)
Warranties with maintenance provisions
When an agreement contains warranty provisions, but also requires the periodic performances of a maintenance agreement, it is taxed as a maintenance agreement.
Commissions for selling third party maintenance agreements
Amounts received as commission or consideration for selling a maintenance agreement for a third party are subject to B&O tax under the Service and Other Activities B&O tax classification.
Subcontractors to maintenance seller
Subcontractors who perform work under a maintenance agreement for the seller of such agreement, are making sales at wholesale. Such subcontractor must obtain a reseller permit. For further information refer to Reseller Permits.
Performance under maintenance agreement
Persons who sell maintenance agreements and perform the work as defined in the agreement are not subject to the retail sales or use tax on materials or labor, which are a part of the required service or repair.
Deductibles
The amount the customer is required to pay, which is not covered by the maintenance agreement, is subject to the Retailing B&O tax and retail sales tax must be collected.
Examples
- A customer purchases a new vehicle for $25,000. The customer also purchases a maintenance agreement from the dealer for $1,000. The maintenance agreement covers all scheduled maintenance for Three years or 36,000 miles. The customer brings the car back to the dealer for the 5,000 mile scheduled maintenance, which includes an oil change and inspection. The dealer's cost for the oil change and labor to inspect the vehicle is $60.
In the tax reporting period the vehicle is sold, the dealer must report:
- $26,000 ($25,000 + $1,000) under the Retailing B&O, Retail Sales, and Local Sales Tax tax classifications.
- $25,000 under the Motor Vehicle Sales/Leases tax classification.
No other B&O tax, use tax, or retail sales tax is due by the dealer.
- A customer purchases a new vehicle for $25,000. Included in the purchase price of the vehicle is a maintenance agreement for three years or 36,000 miles from the manufacturer. Three months after the purchase, the customer brings the car back to the dealer for the 5,000 mile scheduled maintenance, which includes an oil change and inspection. The dealer bills the manufacture $60 for the oil change and labor to inspect the vehicle.
In the tax reporting period the vehicle is sold, the dealer must report $25,000 under the Retailing B&O, Retail Sales, Local Sales Tax, and Motor Vehicle Sales/Leases tax classifications.
In the tax reporting period the customer brings the vehicle in for the scheduled maintenance, the dealer must report the $60 under the Wholesaling B&O tax classification.
Extended warranties and manufacturer's warranty
See also Warranties.
