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Sales Tax On Service Agreement

Note: When a car dealership sells a warranty, extended warranty or service contract, the sale is normally taxable at the applicable tax rate if the customer is established. See 838, A Guide to Sales Tax for Automobile Dealers. As all Lakewood Colorado car dealerships recently learned during the audit, Colorado cities can and can differentiate themselves in the taxation of extended warranty and maintenance contracts. Similarly, taxation in the cities of origin is often different, and not only with regard to vehicles. It seems you can barely buy a computer, phone or other electronic handheld or even a cheap tool without being offered an extended warranty. Retailers offering such service agreements should be assured that they properly comply with the tax laws of different cities of residence in order to avoid costly audits. It is easier to pre-tax an item that pays taxes, interest and penalties during the review, with little chance of recovering tax from your customers. The service contract and warranty sales come from the place where the buyer receives the documents, usually the location of the distributor (RCW 82.04.050). Many merchants sell service contracts at the cash register when goods are sold. These sales are subject to VAT, even if the retailer itself: If you sell a service contract, the amount of VAT you must collect must look like Step 2. Multiply the deductible by the result of Stage 1 (to determine the amount of the taxable deductible). A separate fee for an optional software maintenance contract is 50 per cent taxable if you provide physical products to the buyer during the term of the contract (z.B. your client receives software updates on CD).

If you do not transfer physical software updates or other physical personal effects to your client during the maintenance period, the contractual fee will not be taxable (z.B. download customer software updates from a website and no CDs or other hardware support containing the update are sent). For more information, see Regulation 1502, computers, programs and data processing. Service contracts can also be sold directly to consumers by third parties after purchasing an item. Third-party service contracts are often purchased by consumers when the manufacturer`s initial warranty expires. These sales are also subject to VAT, and the applicable tax rate is the government and local tax rate that applies instead of the property covered by the service contract, not the rate in effect on the seller`s website. An optional warranty or maintenance contract is a contract that your customer can buy for a fee.