Warranties and Maintenance Agreements (Publication 119)
Application of Tax

Does tax apply when I make a warranty repair?

Tax does not apply when a warranty repair includes only labor and does not require parts. However, tax may apply if you furnish parts. The table below shows how tax applies to the sale or use of parts in warranty repairs that do not include a customer deductible or copayment.

For warranty repairs, tax applies to charges for repair parts based on who backs the warranty—that is, the person who is a party to the warranty contract and liable for the repair.

Type of Warranty How tax applies to charges for repair parts
When someone other than the repairer backs the warranty
Mandatory warranty Parts are considered sold with the original product. A charge for repairer's parts to the backer of the warranty is a nontaxable sale for resale. Example: Dealer repair to a new car under the manufacturer's warranty.
Optional warranty The backer of the warranty is the consumer of parts. Tax is due on repairer's parts charges to the backer of the warranty.
When only the repairer backs the warranty
Mandatory warranty Parts are considered sold with the original product. Repairer may purchase the parts for resale.
Optional warranty The repairer is the consumer of parts. Repairer should pay tax at time of purchase or if tax is not paid, report the cost of parts under Purchases Subject to Use Tax on your sales and use tax return.

Revision July 2018