Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
139.010,
139.200,
139.215,
139.260,
139.270,
139.280,
139.290,
139.310,
139.330
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
131.130(1) authorizes the
Department of Revenue to promulgate administrative regulations to administer
and enforce Kentucky's tax laws. This administrative regulation establishes the
sales and use tax requirements for parts and materials used by repairers and
reconditioners of tangible personal property.
Section 1. Definitions.
(1) "De minimis" is defined by
KRS
139.215.
(2) "Extended warranty services" is defined
by
KRS
139.010(13).
Section 2.
(1) A repairer or reconditioner of tangible
personal property shall be classified as a retailer of taxable tangible
personal property sold (including repair parts, replacement parts, and
materials) along with all service, installation, and repair charges associated
with installing or applying the taxable tangible personal property
sold.
(2) Examples of repairers or
reconditioners shall include repairers or reconditioners of:
(a) Airplanes;
(b) Bicycles;
(c) Boats;
(d) Cellular phones;
(e) Computers;
(f) Furniture;
(g) Machinery;
(h) Motor vehicles;
(i) Musical instruments;
(j) Radios; or
(k) Television sets.
Section 3. Taxable and Nontaxable
Service and Installation Labor for Repairers or Reconditioners of Tangible
Personal Property.
(1) Charges for labor or
services provided in installing or applying taxable tangible personal property,
digital property, and services sold shall be subject to sales and use tax. For
example, an appliance repair shop that sells and installs a new drain pump on a
washing machine shall collect and remit sales tax on the sale of the drain pump
and any service, installation, or labor charge associated with the installation
of the drain pump. Since the drain pump sold is subject to sales and use tax,
the service, installation, or labor charges associated with the installation of
the drain pump also shall be subject to sales and use tax.
(2) Service, installation, or labor charges
made to tangible personal property where there is no sale of taxable tangible
personal property, digital property, or service shall not be subject to sales
and use tax. For example, the charge for an appliance repair shop to merely
reconnect a loose drain hose shall not be subject to sales and use tax. If the
appliance repair shop only reconnects a loose drain hose with no sale of
taxable property or services, then the service, installation, or labor charge
associated with the repair shall not be subject to sales and use tax.
(3) If tangible personal property, digital
property, or services sold are not subject to sales and use tax, the charges
for labor or services provided in installing or applying the property or
services sold also shall not be subject to sales and use tax. For example, an
appliance repair shop that sells and installs a washing machine electronic
control panel receives a fully completed Resale Certificate, Form 51A105,
Streamlined Sales and Use Tax Agreement-Certificate of Exemption, Form 51A260,
or Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale
Certificate-Multijurisdictional, for the purchase of the electronic control
panel. Since the electronic control panel is exempt from sales and use tax, the
service, installation, or labor charge associated with the sale and
installation of the electronic control panel also shall not be subject to sales
and use tax.
Section 4.
De Minimis Parts and Materials.,
(1)
According to the provisions of
KRS
139.215, if the value of the parts and
materials used in the repair or reconditioning of tangible personal property is
less than ten (10) percent of the total value of the parts and materials,
labor, and other services performed and if no separate charge is made for the
property, the repairer or reconditioner shall be classified as the consumer of
the property, and the suppliers of parts and materials shall be classified as
retailers subject to the tax with respect to the property which they sell to
the repairer or reconditioner.
(2)
The list in this subsection shall serve as examples of repairs or alterations
in which the parts and materials used are less than ten (10) percent in
relation to the charges for labor or other services performed:
(a) Repairs of:
1. Clothing;
2. Dental prosthesis;
3. Eyeglass frames;
4. Fishing rods;
5. Jewelry;
6. Tires;
7. Tubes; or
8. Watches; or
(b) Alterations performed by the retailer to
refit clothes and other garments for the use for which they were originally
produced.
Section
5. Extended Warranty Services.
(1)
(a)
Effective July 1, 2018, receipts from the sale of extended warranty services,
including the sale of optional service, maintenance, or extended warranty
contracts related to taxable tangible personal property, shall be subject to
sales and use tax.
(b) The person
performing repair work under the provisions of an extended warranty service
agreement or contract subject to tax sold on or after July 1, 2018, may
purchase the repair parts used in fulfilling the contract exempt from sales and
use tax using the Resale Certificate, Form 51A105, the Streamlined Sales and
Use Tax Agreement- Certificate of Exemption, Form 51A260, or the Multistate Tax
Commission's Uniform Sales and Use Tax Exemption/Resale
Certificate-Multijurisdictional pursuant to
KRS
139.270.
(c) Charges by an entity to perform repair
labor under the provisions of an extended warranty service agreement or
contract sold on or after July 1, 2018, where the provided repair parts are
covered as part of the contract, shall not be subject to sales and use
tax.
(d) Charges by a third party
to perform repair work for an extended warranty service agreement provided
under the provision of an extended warranty service agreement or contract sold
on or after July 1, 2018, where the provided repair parts are covered as part
of the contract, shall not be subject to sales and use tax.
(e) Charges for repair work made outside the
provisions of an existing extended warranty service agreement or contract that
include taxable service, installation, or repair labor are included in gross
receipts pursuant to
KRS
139.010(15)(a)(6) and shall
be subject to sales tax.
(f)
Deductibles charged as part of the provision of a taxable extended warranty
service contract shall be subject to sales and use tax.
(2)
(a)
Receipts from the sale of optional service, maintenance, or extended warranty
contracts sold prior to July 1, 2018, not required as part of the sale of
taxable tangible personal property, shall not be subject to sales and use tax
if the retailer separately itemized the charge for the sale of the service,
maintenance, or extended warranty contract on the customer's invoice and in the
retailer's books and records.
(b)
The person performing the repair work under a contract described in subsection
(2)(a) of this section sold prior to July 1, 2018, shall report and pay the tax
on the purchase price of all tangible personal property used in the fulfillment
of the contract.
Section
6. Forms. The forms listed herein may be inspected, copied, or
obtained, subject to applicable copyright law, at:
(1) The Kentucky Department of Revenue, 501
High Street, Frankfort, Kentucky 40601;
(2) A Kentucky Taxpayer Service Center,
Monday through Friday, 8:00 a.m. to 4:30 p.m.; or
(3) The Department or Revenue Web site at
http://revenue.ky.gov.
Section 7.
(1) This administrative regulation shall
replace Revenue Circular 51C020 and Revenue Policy 51P190.
(2) Revenue Circular 51C020 and Revenue
Policy 51P190 are hereby rescinded and shall be null, void, and
unenforceable.
STATUTORY AUTHORITY:
KRS
131.130(1)