Iowa Administrative Code › Agency 701 - Revenue Department › Title III - Sales, Use, and Excise Tax › Chapter 285 - Taxable and Exempt Sales Determined by Method of Transaction or Usage › Rule 701-285.25 - Warranties and Maintenance Contracts

Current through Register Vol. 47, No. 3, July 24, 2024
(1) In general-definitions. "Mandatory
				warranty." A warranty is mandatory within the meaning of this regulation when
				the buyer, as a condition of the sale, is required to purchase the warranty or
				guaranty contract from the seller. "Optional warranty." A warranty is optional
				within the meaning of this regulation when the buyer is not required to
				purchase the warranty or guaranty contract from the seller.
(2) Mandatory warranties. When the sale of
				tangible personal property or services includes the furnishing or replacement
				of parts or materials which are pursuant to the guaranty provisions of the
				sales contract, a mandatory warranty exists. If the property subject to the
				warranty is sold at retail, and the measure of the tax includes any amount
				charged for the guaranty or warranty, whether or not such amount is purported
				to be separately stated from the purchase price, the sale of replacement parts
				and materials to the seller furnishing them thereunder is a sale for resale and
				not taxable. Labor performed under a mandatory warranty which is in connection
				with an enumerated taxable service is also exempt from tax.
(3) Optional warranties. For periods after
				June 30, 1981.
a. The sale of optional
				service or warranty contracts which provide for the furnishing of labor and
				materials and require the furnishing of any taxable service enumerated under
				Iowa Code section 422.43 is considered a sale of
				tangible personal property the gross receipts from which are subject to tax at
				the time of sale except as described below.
b. On and after July 1, 1995, the sale of a
				residential service contract regulated under Iowa Code chapter 523C is not
				considered to be the sale of tangible personal property, and gross receipts
				from the sales of these service contracts are no longer subject to tax, and the
				gross receipts from taxable services performed for the providers of residential
				service contracts are now subject to tax. See the examples below for more
				detailed explanation. A "residential service contract" is defined in Iowa Code
				subsection 523C.1(8)  to
				be: a contract or agreement between a residential customer and a service
				company which undertakes, for a predetermined fee and for a specified period of
				time, to maintain, repair, or replace all or any part of the structural
				components, appliances, or electrical, plumbing, heating, cooling, or
				air-conditioning systems of residential property containing not more than four
				dwelling units.
EXAMPLE A. John Jones purchases a residential service
				  contract for $3,000 on July 1, 1994. He pays $150 of Iowa state sales tax. On
				  December 1, 1994, his furnace malfunctions. The service company which sold Mr.
				  Jones the contract pays Smith Furnace Repair $700 to fix the furnace. No sales
				  tax is due on the $700 charge.
EXAMPLE B. Bob Jones purchases a residential service contract
				  for $3,000 on July 1, 1995. No sales tax is owing or paid. On December 1, 1995,
				  his furnace becomes inoperable. The service company which sold Mr. Jones the
				  contract pays Smith Furnace Repair $900 to fix Mr. Jones' furnace. Sales tax of
				  $45 is due based on the $900.
c. On and after July 1, 1998, if an optional
				service or warranty contract is a computer software maintenance or support
				service contract and the contract provides for the furnishing of technical
				support services only and not for the furnishing of any materials, then no tax
				is imposed on the furnishing of those services under this subrule. If a
				computer software maintenance or support service contract provides for the
				performance of nontaxable services and the taxable transfer of tangible
				personal property, and no separate fee is stated for either the performance of
				the service or the transfer of the property, then state sales tax of 5 percent
				shall be imposed on 50 percent of the gross receipts from the sale of the
				contract. If a charge for the performance of the nontaxable service is
				separately stated, see subrule 18.25(5) below.