Parts Used To Restore Vehicles To Salable Condition (Not Taxable). Parts used to repair or restore a used vehicle to a salable condition are not subject to sales and use tax when purchased by the dealer, since they are purchased for resale. The tax collected at the time the used motor vehicle is sold will include the value of the parts installed. However, consumable supplies, such as cleaners and waxes used in the reconditioning of a motor vehicle for sale, are subject to sales and use tax. Rule 560‑12-2-.09 (6)(b). WARRANTIES AND MAINTENANCE AGREEMENTS The tax rules concerning parts on warranty repairs and service agreements can seem more complex. This is the topic on which GADA has received the most questions. Parts Used in Factory Warranty/Retail Dealer Warranty (Not Taxable). When a motor vehicle is sold at retail, a warranty from the manufacturer or retail dealer is often included in the selling price … When repairs are made under such warranty, no tax is due since a manufacturer’s or retail dealer’s warranty was part of the sales price of the motor vehicle when originally sold. Rule 560-12-2-.09 (6)(c). How does this apply if a third party makes the repairs under the factory/dealer warranty? The Rule states that the customer is not taxed regardless of whether the manufacturer or retail dealer makes the repairs or whether they pay someone else to make the repairs. Rule 560-12-2-.09 (6)(c). Parts Used in Extended Warranty or Maintenance Agreement (Taxable). The sale of an extended warranty or maintenance agreement is not taxable to the customer provided that the charge for such warranty or maintenance agreement is itemized on the dealer’s invoice to the customer. That said, “The parts associated with repairs pursuant to such agreements are subject to sales and use tax.” Rule 560-12-2-.09 (6)(d). Specifically, the dealer is liable for use tax on the repair parts based on the dealer’s cost. But what if the dealer charges a third-party for the repairs? According to the Rule, “In the event the dealer charges a third party for the repair, the dealer must charge sales tax to the third party… as would apply to any other retail sale.” Rule 560-12-2-.09 (6)(d). This article is for informational purposes only and is not intended to be legal advice. Dealers are advised to seek advice from dealership legal counsel or other competent professionals concerning individual dealership operations. The presentation of this article is not intended to encourage concerted action among competitors or any other action on the part of dealers that would in any manner fix or stabilize the price or any element of the price of any good or service. 15 THE GENERATOR
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