Current through Register Vol. 41, No. 3, September 23, 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.
