Connecticut State Department of Revenue Services

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LSN-92

Revised Special Notice Concerning Sales And Use Taxes On Maintenance, Repair, And Warranty Contracts

This LSN is superseded in part by PS 94(2); 
superseded in part by Ruling 89-152; cited in Ruling 89-168
On and after July 1, 1989, the rendering of certain repair and maintenance services to tangible personal property is treated as a sale, for purposes of the Sales and Use Taxes Act.  Specifically, the providing of motor vehicles repair services to persons engaged in a trade or business (Conn. Gen. State. §12-407(2)(i)(M)), radio or television repair services §12-407(2)(i)(O)), furniture reupholstering and repair services §12-407(2)(i)(P)), repair services to electrical or electronic devices §12-407(2)(i)(Q)), and repair or maintenance service to other items of tangible personal property (excluding motor vehicles) §12-407(2)(i)(DD)), is treated as a sale.  Charges made for such services are subject to sales and use taxes.

Some of these services are provided under long-term contracts.  Some providers of these services engage third parties to perform these services on their behalf.  The purpose of this Special Notice is to point out the sales and use tax consequences of these contracts, for those whose items of tangible personal property are repaired or maintained, for those who are contractually obligated to repair or maintain such items for their owners, and for third parties who are engaged to repair or maintain items on behalf of others.

MAINTENANCE CONTRACTS

Maintenance contracts are contracts requiring maintenance service to be performed on an item of tangible personal property at a future time. This service is provided to sustain or support safe, efficient, continuous operation, (or to keep in good working order by preventing the decline, failure, lapse or deterioration) of an item of tangible personal property. This service is not contingent upon the malfunctioning of the tangible personal property covered under the contract.

REPAIR CONTRACTS

Repair contracts are contracts requiring service to be performed on an item of tangible personal property which is broken, damaged, defective or malfunctioning at the time the parties enter into the contract. The essence of repair service is to mend or restore such tangible personal property to good working order or operating condition.

MANUFACTURERS' WARRANTIES

Manufacturers' warranties are provided, without additional charge, to purchasers of tangible personal property.  Such warranties require repair service to be performed on an item of tangible personal property in the event that it breaks, is damaged, becomes defective or malfunctions within a specified period following purchase.

EXTENDED WARRANTIES

Extended warranties are contracts requiring repair service to be performed on an item of tangible personal property that is broken, damaged, defective or malfunctioning. Extended warranties may be purchased, for a separate price, generally at the time of purchase of the item of tangible personal property.  They are sometimes referred to as extended service contracts.

CONTRACTS CONTAINING MAINTENANCE SERVICE AND WARRANTY TERMS

Where contracts provide both maintenance service and warranty terms with respect to an item of tangible personal property, charges made to purchase such contracts are wholly subject to sales and use taxes, unless there is a clear allocation of a portion of the contract price to warranty work.  (The service provider's records must support this allocation and the allocation must be reasonable in light of relevant industry or trade standards.)  If such an allocation is made, that portion of the charge that is allocated to warranty work is not subject to sales and use taxes.

LEMON LAW REPLACEMENT MOTOR VEHICLES

In the event that manufacturers of motor vehicles are required, in accordance with Conn. Gen. Stat. §42-179, to replace motor vehicles with new motor vehicles, sales and use taxes shall not apply with respect to such replacements.

CHARGES SUBJECT TO SALES AND USE TAXES?

Sale of maintenance contract by maintenance service provider Yes, including any separately stated charge for repair parts
Purchase of repair parts by maintenance service provider Yes, unless the maintenance contract allows the service provider to charge for repair parts, in which case the service provider may issue a resale certificate in purchasing the parts as long as the charge for parts is separately stated on the bill or invoice to the service recipient.
By third party to maintenance service provider on whose behalf maintenance services are rendered Yes. The maintenance service provider may not issue a resale certificate to the third party.
Sale of repair services other than to warrantor by repairer Yes, including any separately stated charge for repair parts
Purchase of repair parts by repairer No. The repairer may issue a resale certificate in purchasing the parts as long as the charge for parts is stated separately on the bill or invoice to the service recipient.
Purchase of repair parts by warrantor (or third party repairing on behalf of warrantor) No. The warrantor (or third party) shall issue a resale certificate in purchasing the parts.
By third party repairer to warrantor on whose behalf repair services are rendered, including separately stated charges for repair parts or services No.  The warrantor shall issue a resale certificate to the third party repairer.
Sale of extended warranty
No
Purchase of repair parts by extended warrantor (or third party repairing on behalf of extended warrantor) Yes
By third party repairer to extended warrantor on whose behalf repair services are rendered, including separately stated charges for repair parts or services Yes. The extended warrantor may not issue a resale certificate to the third party repairer.

 

EFFECTIVE DATE

This Special Notice applies to contracts entered into on or after July 1, 1989.  A contract originally entered into before that date will be considered a contract entered into on or after that date, upon the renewal or exercise of an option to extend the terms of such contract (whether with or without the affirmative act of either party thereto), upon the renegotiation of terms, or upon any price change.  In such event, charges made to the service recipient will be subject to sales and use taxes, where appropriate.

LSN-92