Tax Commission, Auditing

Section R865-19S-78

Charges for Labor and Repair Under an Extended Warranty Agreement Pursuant to Utah Code Ann. Sections 59-12-103 and 59-12-104

Notice of Proposed Rule

(Amendment)

DAR File No.: 34268
Filed: 12/01/2010 09:27:10 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The proposed amendment will treat all transactions in the same manner as bundled transactions are treated under statute, and clarifies the current treatment of service plan charges for items of tangible personal property that are permanently attached to real property.

Summary of the rule or change:

Amendment removes language indicating that in a purchase consisting of taxable and nontaxable items, the nontaxable items must be separately stated on the invoice or the entire purchase is subject to sales tax. The standard for recording these transactions will be in the amended Section R865-19S-4. This amended section will allow the seller to separately state the nontaxable items on the invoice or be able to reasonably identify them from the books and records it keeps in its regular course of business. In addition, the proposed amendment clarifies the current treatment of service plan charges for items of tangible personal property that are permanently attached to real property. (DAR NOTE: the proposed amendment to Section R865-19S-4 was published under DAR No. 33848 in the August 15, 2010, issue of the Bulletin and was effective 09/23/2010.)

State statutory or constitutional authorization for this rule:

• Section 59-12-104
• Section 59-12-103

Anticipated cost or savings to:

the state budget:

The proposed amendment does not impact the amount of tax due; only the recordkeeping requirements of the seller. The clarification of the treatment of service plan charges matches commission practice.

local governments:

The proposed amendment does not impact the amount of tax due; only the recordkeeping requirements of the seller. The clarification of the treatment of service plan charges matches commission practice.

small businesses:

None--Sellers are currently acting within the scope of the proposed amendment. The proposed amendment will allow sellers who sell taxable and nontaxable items in a nonbundled transaction the same invoicing options as the seller of a bundled transaction. The clarification of the treatment of service plan charges matches commission practice.

persons other than small businesses, businesses, or local governmental entities:

None--Sellers are currently acting within the scope of the proposed amendment. The proposed amendment will allow sellers who sell taxable and nontaxable items in a nonbundled transaction the same invoicing options as the seller of a bundled transaction. The clarification of the treatment of service plan charges matches commission practice.

Compliance costs for affected persons:

None--Sellers are currently acting within the scope of the proposed amendment. The proposed amendment will allow sellers who sell taxable and nontaxable items in a nonbundled transaction the same invoicing options as the seller of a bundled transaction. The clarification of the treatment of service plan charges matches commission practice.

Comments by the department head on the fiscal impact the rule may have on businesses:

None anticipated.

Michael Cragun, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at cj@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

01/14/2011

This rule may become effective on:

01/21/2011

Authorized by:

R. Bruce Johnson, Tax Commission Chair

R865. Tax Commission, Auditing.

R865-19S. Sales and Use Tax.

R865-19S-78. Service Plan Charges for Labor and Repair [Under an Extended Warranty Agreement ]Pursuant to Utah Code Ann. Sections 59-12-103 and 59-12-104.

[(1) Sales of extended warranty agreements or service plans are taxable, and tax must be collected at the time of the sale of the agreement. The payment is considered to be for future repair, which would be taxable. If the extended warranty agreement covers parts as well as labor, any parts that are exempt from sales tax pursuant to Section 59-12-104 must be separately stated on the invoice or the entire charge under the extended warranty agreement is taxable. Repairs made under an extended warranty plan are exempt from tax, even if the plan was sold in another state.

(a) Repair parts provided and services rendered under the warranty agreements or service plans are not taxable because the tax is considered prepaid as a result of taxing the sale of the warranty or service plan when it was sold.](1) "Service plan" includes an extended warranty agreement or other prepaid arrangement.

(2)(a) Service plan charges for a future taxable repair are subject to sales tax.

(b) [If the customer is required to pay for any parts or labor at the time of warranty service, sales tax must be collected on the amount charged to the customer.] Sales tax must also be collected on any [deductibles]deductible charged to [customers]a customer for [their]the customer's share of the repair [work] done under the [warranty agreement]service plan.[ Parts or materials that are exempt from sales tax pursuant to Section 59-12-104 must be separately stated on the invoice or the entire charge for labor and parts is taxable.]

[(2)](3)(a) [Extended warranties on]Service plan charges for items of tangible personal property that are converted to real property are not taxable.[ However, the taxable nature of parts and other items of tangible personal property provided in conjunction with labor under an extended warranty service shall be determined in accordance with R865-19S-58.]

(b) Service plan charges for items of tangible personal property that are permanently attached to real property are treated as follows:

(i) service plan charges for labor are not taxable; and

(ii) service plan charges for parts are taxable unless exempt under Title 59, Chapter 12, Part 1, Tax Collection.

(6) Rule R865-19S-58 outlines the sales tax responsibility of a person that converts tangible personal property to real property.

 

KEY: charities, tax exemptions, religious activities, sales tax

Date of Enactment or Last Substantive Amendment: [September 23, 2010]2011

Notice of Continuation: March 13, 2007

Authorizing, and Implemented or Interpreted Law: 9-2-1702; 9-2-1703; 10-1-303; 10-1-306; 10-1-307; 10-1-405; 19-6-808; 26-32a-101 through 26-32a-113; 59-1-210; 59-12; 59-12-102; 59-12-103; 59-12-104; 59-12-105; 59-12-106; 59-12-107; 59-12-108; 59-12-118; 59-12-301; 59-12-352; 59-12-353