PS 94(2)
Maintenance, Repair and Warranty Contracts
This publication has been amplified by PS 96(10) modified by SN 2000(2), and obsoleted in part by AN 2000(8)
PURPOSE: This Policy Statement describes the imposition of sales and use taxes on the sale or renewal of any maintenance, repair or warranty contract related to any item of tangible personal property. This Policy Statement also describes the sales and use tax treatment of repairers who perform maintenance, repair or warranty services under such contracts.
STATUTORY AUTHORITY: Conn. Gen. Stat. Section 12-407(2)(i)(GG), which imposes sales and use taxes on "any repair or maintenance service to any item of tangible property including any contract of warranty or service related to any such item."
EFFECTIVE DATE: Effective upon issuance and applicable to sales on or after October 1, 1991 of all maintenance, repair and warranty contracts related to any item of tangible personal property.
DEFINITIONS OF MAINTENANCE, REPAIR AND WARRANTY CONTRACTS:
Maintenance contracts are contracts that provide for service to be performed on an item of tangible personal property at a future time. This service is rendered to sustain or support safe, efficient, continuous operation of tangible personal property, or to keep an item in good working order by preventing its decline, failure, lapse or deterioration. This service is not contingent upon the malfunctioning of the tangible personal property covered under the contract.
Repair contracts are contracts that provide for service to be performed on an item of tangible personal property which is broken, damaged, defective or malfunctioning at the time the parties enter into the contract. The essence of repair service is to mend or restore such tangible personal property to working order or operating condition.
Warranty or Guaranty contracts are contracts that provide for repair service only in the event of a future malfunctioning of an item of tangible personal property.
TAXABILITY OF MAINTENANCE, REPAIR OR WARRANTY CONTRACTS: The sale or purchase of a maintenance, repair or warranty contract, or any combination of such contracts, is subject to the sales and use taxes under Conn. Gen. Stat. Section 12-407(2)(i)(GG).
Repairers who perform repair work, including supplying parts and services, under the maintenance, repair or warranty contract of a manufacturer or other person are not subject to sales and use taxes on the amount of the reimbursement received from the warrantor. Sales and use taxes need not be charged at the time the work is performed because the taxes are considered to have been paid at the time of the purchase of the maintenance, repair or warranty contract. However, any charge made by the repairer, such as a deductible, which the consumer is obligated to pay under the maintenance, repair or warranty contract at the time services are rendered, is subject to tax.
Resale of Parts: Repairers may purchase parts to be used in performing services under a maintenance, repair or warranty contract on a resale basis, as provided in Conn. Gen. Stat. Section 12-410 or Section 12-411. Sales and use taxes need not be charged at the time the parts are provided (unless a charge for the parts is made by the repairer to the consumer) because the taxes are considered to have been paid at the time of the purchase of the maintenance, repair or warranty contract. The parts may be purchased on a resale basis whether or not the original contract was entered into prior to October 1, 1991 or whether or not the original sale occurred in Connecticut.
Resale of Services: When a repairer does not repair tangible personal property under a maintenance, repair or warranty contract but instead contracts with a third party to perform such obligations, the repairer may purchase the services of the third party on a resale basis as provided in Conn. Gen. Stat. Section 12-410(5) or Section 12-411(14) because the services are considered to be resold by the repairer to its customer. Sales and use taxes need not be charged at the time the services are rendered (unless a charge for the services is made by the repairer to the consumer) because the taxes are considered to have been paid at the time of the purchase of the maintenance, repair or warranty contract. Such services may be purchased on a resale basis, whether or not the original contract was entered into prior to October 1, 1991 or whether or not the original sale occurred in Connecticut.
RENEWALS OF MAINTENANCE, REPAIR OR WARRANTY CONTRACTS: Any renewal or exercise of an option to extend the terms, either automatically or by the action of either party to the contract, is subject to sales and use tax. With respect to contracts entered into prior to October 1, 1991, charges for all such renewals and exercises of options occurring on and after October 1, 1991 to extend the terms of the contract are subject to sales and use taxes.
EFFECT ON OTHER DOCUMENTS: Ruling 89-127 is superseded by this Policy Statement. LSN-92 (NEW 6-89) and Rulings 89-22, 89-97 and 89-152 are obsoleted by the amendment of Conn. Gen. Stat. Section 12-407(2)(i)(GG), by 1991 Conn. Pub. Acts 3, Section 103 and by this Policy Statement. Such documents may not be relied upon with respect to warranty and service work performed by retailers and third party repairers on or after October 1, 1991 or the sale of any maintenance, repair or warranty contracts entered into or renewed on or after October 1, 1991.
EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current Department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions.
PS 94(2)
Sales and Use Taxes
Issued: 2/28/94