Illinois Administrative Code › Title 86 - REVENUE › Part 140 - SERVICE OCCUPATION TAX › Subpart A - NATURE OF TAX › Section 140.141 - Warranty Repairs

Current through Register Vol. 48, No. 28, July 12, 2024
a) Transfers of
				repair parts, repair materials and other tangible personal property by persons
				who repair tangible personal property belonging to others as an incident of
				furnishing repair services are generally subject to tax under the Service
				Occupation Tax Act. (See Section
				140.140(1).)
b) However, where a seller/warrantor (e.g., a
				retailer or a manufacturer) is required to make a repair to an item under the
				terms of a warranty included in the retail selling price of that item, the
				repair parts and materials transferred incident to the repair are not subject
				to tax. This is because the warranty (and the work to be done under the
				warranty) was included as part of the retail selling price of the item and, as
				such, was subject to Retailers' Occupation Tax and Use Tax when the item was
				sold at retail. The warranty constitutes an agreement, included in the retail
				selling price of the item, that the item is free from defects in materials and
				workmanship and, if any such defect exists, it will be cured. The warranty may
				be express or implied. So long as the seller/warrantor is obligated to make a
				repair under the terms of a warranty that was included in the retail selling
				price of the item, the repair is not subject to tax. The following situations
				are examples.
1) Manufacturer's Express
				Warranty. When an item of tangible personal property is sold at retail, an
				express warranty from the manufacturer is often included in the selling price.
				This express warranty obligates the manufacturer to correct defects in
				materials and workmanship during a specified timeframe. When repairs are made
				under the terms of an express warranty, no tax is due and this is true whether
				the manufacturer makes the repairs or whether the manufacturer pays someone
				else to make the repairs.
2) Safety
				Related Recall. Sometimes, a particular product line is recalled by a
				manufacturer to correct a manufacturing defect that relates to product safety.
				Such recalls can be made on the manufacturer's own initiative or as the result
				of a recommendation by a governmental agency such as the National Highway
				Traffic Safety Administration or the U.S. Consumer Product Safety Commission.
				In either event, when repairs are made in this situation, no tax is incurred as
				a result of those repairs even if the repairs are not required by the
				manufacturer's express warranty. This is so because manufacturers make an
				implied warranty that the items they sell are free from safety-related
				manufacturing defects. Repairs made under safety related recalls are not
				taxable and this is true whether the manufacturer makes the repairs or pays
				someone else to make the repairs.
3) Non-safety Related Recall. Sometimes, a
				particular product line is recalled by a manufacturer to correct a non-safety
				related defect in materials and workmanship. So long as the manufacturer is
				required to correct the defect as the result of an enforceable agreement
				included in the retail selling price of the item that the item was being
				purchased free of manufacturing defects and the repairs are necessary to
				correct a manufacturing defect, no tax liability is incurred as a result of the
				repair. Again, this is true whether the manufacturer makes the repairs or pays
				someone else to make the repairs. It is also true even if the repairs are
				required to be made outside the time limits contained in the manufacturer's
				express warranty.