Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-910 - Maintenance contracts and warranty plans

Current through Register Vol. 40, No. 24, July 15, 2024
A. Definitions. The following words and terms
				when used in this section shall have the following meanings unless the context
				clearly indicates otherwise:
"Maintenance contract" means an agreement whereby a person
				  agrees to maintain or repair an item of tangible personal property over a
				  specified period of time for a fee that is determined when the agreement is
				  made. A maintenance contract may provide for labor only, parts only, or labor
				  and parts.
B. Maintenance
				contracts, generally.
1. Labor only contracts.
				Maintenance contracts that provide solely for the furnishing of repair labor
				are contracts for services and charges for such contracts are not taxable. This
				includes software maintenance contracts that provide services, i.e., updates,
				revisions, replacements and programming, by electronic means such as online
				downloads or online remote access. Persons providing repair services under such
				contracts are liable for the tax on all items used and consumed in the
				provision of their services.
2.
				Parts only contracts. Maintenance contracts that provide solely for the
				furnishing or replacement of parts, rather than labor, represent a sale of
				tangible personal property. The total charge to the customer for parts only
				contracts is taxable. Persons providing replacement parts may purchase such
				parts under a resale certificate of exemption.
Example: Buyer A purchases a maintenance contract from Seller
				  B that provides for repair and replacement parts only. It is stipulated in the
				  contract that all repair labor will be billed separately to the buyer based on
				  an hourly rate. This contract constitutes a parts only contract and is 100%
				  taxable.
3. Parts and labor
				contracts. Maintenance contracts that provide for the furnishing of both repair
				or replacement parts and repair labor are a combination of taxable sales and
				nontaxable services. As it is impossible to determine in advance the
				percentages of labor and parts that will be provided under the contract, the
				contract will be deemed to be a contract for one-half labor and one-half parts,
				regardless of the percentages of labor and parts actually provided under the
				contract. Thus, one-half of the total charge for such a contract is subject to
				the tax. Persons providing maintenance pursuant to such contracts may purchase
				repair or replacement parts under a resale certificate of exemption, but are
				liable for the tax on all items purchased for their own personal use and
				consumption in performing repairs or maintenance.
Example 1: A maintenance contract provides that if Purchaser
				  C's refrigerator breaks down, Seller D will come out and fix it (repair labor)
				  and replace any parts that are defective (replacement parts) for one year. The
				  contract is a parts and labor contract and subject to tax on one-half of the
				  total contract price.
Example 2: Buyer E purchases a maintenance contract for
				  computer hardware and software from Seller F. Under the terms of the contract,
				  Seller F provides 24-hour telephone hotline support, parts replacement for
				  hardware, new releases, updates, revisions, and replacements of licensed
				  software in tangible form, and services to correct programming errors. This
				  maintenance contract constitutes a parts and labor contract and would be
				  subject to the tax based on one-half the total contract price.
4. After hours maintenance
				charges. Any additional charges for extended or after hours maintenance that
				are based upon a percentage of or addition to the standard maintenance contract
				are taxable in the same manner as the contract upon which the additional
				charges are based.
Example: A maintenance contract that is part labor and part
				  replacement parts will continue to be taxed at one-half of the total charge
				  whether or not the buyer decides to add additional after hours protection to
				  the contract.
5. Extended
				warranty plans. With the exception of extended warranty plans issued by
				licensed insurance companies, the tax applies to charges for extended warranty
				plans that provide for the provision of repair parts and labor. The application
				of the tax to extended warranty plans is calculated in the same manner as
				maintenance contracts in this subsection. Extended warranty plans issued by an
				insurance company regulated by the Bureau of Insurance of the State Corporation
				Commission are insurance transactions and are not subject to the tax. For
				repairs generally, see
				23VAC10-210-3050.