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BTLG Table of Contents > Sales and Use Tax Annotations > R > 490.0000 Returns, Defects and Replacements > Annotation 490.0430

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R

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490.0000 Returns, Defects and Replacements—Regulation 1655

Annotation 490.0430

(b) Replacements Generally—Maintenance Contracts

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490.0430 Bundled Optional Maintenance Contract. A taxpayer is engaged in the business of selling lump-sum optional maintenance contracts for office computer printers. The taxpayer does not sell the printers. One of the types of optional maintenance contracts the taxpayer sells is a "bundled optional maintenance contract." Under this contract, the taxpayer maintains the printers, including repair labor and new parts to maintain the printers in working condition. In addition, the taxpayer provides new disposable toner/ink cartridges for the printers as needed. The contract is sold for fixed monthly, quarterly, or yearly amounts, and the fixed amount does not fluctuate due to the volume of either parts or cartridges needed.

The taxpayer's contract to maintain the printers and to provide new disposable toner/ink cartridges for the printers is the sale of both an optional maintenance contract and of tangible personal property (the toner/ink cartridges) for a lump-sum price. The sale of the optional maintenance contract is not subject to tax. The taxpayer is the consumer of the parts and material furnished in the performance of maintaining the printer in working condition and tax applies to the sale of such items to the taxpayer, or to its use of such property. On the other hand, the toner/ink cartridges are not regarded as materials consumed by the taxpayer in maintaining the printers. Rather, they are sold by the taxpayer and those sales are subject to tax.

An allocation between the taxable and nontaxable charges must be made. Therefore, the taxpayer should segregate on the invoice to its customer, and in its records, the taxable fair retail selling price of the toner/ink cartridges from the nontaxable charges for the optional maintenance contract. 8/26/96.