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Are home warranties subject to retail sales tax?
No, extended warranties that cover the repair of real property (“home warranty”) are not subject to retail sales tax. Instead, the income is subject to business and occupation (B&O) tax under the Service and Other Activities classification.
What do home warranties cover?
Home warranties cover real property, including, but not limited to:
- Air conditioning systems.
- Electrical systems.
- Furnace/heating systems.
- Plumbing/water systems.
- Structural building components.
- Built-in appliances, such as ovens.
Occasionally, home warranties are sold to cover certain specified items for an additional charge. If the additional charge is to cover tangible personal property, then retail sales tax applies to the additional charge.
How are home warranties taxed when the owner has to pay part of the repair cost?
If the home warranty requires the owner to pay a portion of the repair cost, that charge is subject to retail sales tax. When a person performs the repair on behalf of the warrantor (person or company that provides the warranty), the person making the repair is making a retail sale. The repair person must collect retail sales tax on the charge to the warrantor (the person or company that provides a warranty).
Generally, repairs to real property are subject to retail sales tax.
How are repairs taxed when the product is not covered by a home warranty?
If a product is not covered by a home warranty, the repair cost to fix that product is subject to B&O tax under the Retailing classification. The repair person must collect retail sales tax from their customer. The sales tax rate is based on the location where the repair is performed.
If the warrantor is completing the repair, do they owe retail sales or use tax on materials or parts, when there is no charge to the owner?
Yes. If the warrantor is performing the repair for no additional charge, the warrantor is the consumer of any parts and materials used in the repair. The warrantor must pay retail sales tax to the supplier, or use tax on the value of the parts and materials if the supplier did not charge sales tax.
How is a third party repair service taxed, if they are hired by the warrantor to complete the warranty repair?
In most cases, the warrantor will hire a third party repair service to complete the warranty work. The gross income the third party repair service receives is subject to B&O tax under the Wholesaling classification.
The warrantor must provide the third party repair service a copy of their reseller permit. If the warrantor does not provide this documentation, then the third party repair service must collect retail sales tax on the warranty services.
How is a third party repair service taxed, if they are hired by the warrantor and the customer to complete warranty and non-warranty repairs?
The gross income the third party repair service receives to complete the warranty repair is subject to B&O tax under the Wholesaling classification. The third party repair service must receive a copy of the warrantor’s reseller permit. If the warrantor does not provide this documentation, then the third party repair service must collect retail sales tax on the warranty services.
If the repairs are not covered by a warranty, the third party repair service is responsible for collecting retail sales tax from the customer on the cost of non-warranty repair. In addition, this income is subject to B&O tax under the Retailing classification.
Are extended warranties for tangible personal property subject to retail sales tax?
Yes. The sale of an extended warranty for repairs of tangible personal property is a retail sale. An example would include, purchasing an extended warranty for a cellular phone.
For additional information on the sales of extended warranties covering tangible personal property, see RCW 82.04.050(7) and our Special Notice on Extended Warranties now subject to Sales Tax.
