SALT Report 2274 – The Indiana Department of Revenue updated an information bulletin regarding optional warranty contracts and maintenance contracts to clarify that a retail merchant will not be required to self-assess use tax on any parts used to fulfill the terms of an optional warranty contract.
Additional updates include:
- The service provider, under an optional warranty contract issued by the service provider, will be required to pay sales or use tax on the cost of all taxable items used under the contract,
- If a dealer or service provider uses or installs items pursuant to a warranty contract sold by a third-party, the dealer or service provider will be responsible for the sales tax attributed to the taxable items used under the contract,
- The definition of “warranty contract” has been amended to include extended service contracts,
- Any tax paid on items used under an optional warranty contract is based on the acquisition cost of the warranty’s service provider. The acquisition cost does not reflect any deductible collected from the customer, and
- The amount subject to tax includes any subsequent payments made by the purchaser, such as deductibles or other fees. For example, an original manufacturer warranty or dealer warranty that was not offered as an option when the product was first sold will be considered part of the selling price of the product
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