Definition
A maintenance agreement (contract), sometimes called a service agreement (contract), is an agreement which requires specific performance of repairing, cleaning, altering or improving tangible personal property on a regular or irregular basis to ensure the product's continued satisfactory operation.
Retail sales tax
Charges for maintenance agreements are retail sales subject to the Retailing B&O tax and retail sales tax.
Warranties with maintenance provisions
When an agreement contains warranty provisions, but also requires the periodic performances of a maintenance agreement, it is taxed as a maintenance agreement.
Commissions for selling third party maintenance agreements
Amounts received as commission or consideration for selling a maintenance agreement for a third party are subject to B&O tax under the Service and Other Activities B&O tax classification.
Subcontractors to maintenance seller
Subcontractors who perform work under a maintenance agreement for the seller of such agreement, are making sales at wholesale. Such subcontractor must obtain a properly completed resale certificate (pdf).
Performance under maintenance agreement
Persons who sell maintenance agreements and perform the work as defined in the agreement are not subject to the retail sales or use tax on materials or labor, which are a part of the required service or repair.
Deductibles
The amount the customer is required to pay, which is not covered by the maintenance agreement, is subject to the Retailing B&O tax and retail sales tax must be collected.
Example
A customer purchases a new vehicle for $15,000. A maintenance agreement for $100 is purchased which covers routine service, checkups and oil changes. The customer brings the car back to the dealer for a 3,000 mile check and to have the oil changed. The dealer's cost for the oil change and labor to check the vehicle is $60.
The dealer is liable for:
Retailing B&O tax and collection of the retail sales tax on the price of the vehicle and the maintenance agreement totaling $15,100.
No other B&O tax, use tax or retail sales tax is due.
Extended warranties and manufacturer's warranty
See also Warranties.
Reference
Washington Administrative Code (WAC) 458-20-257 |