Tax Type
Retail Sales and Use Tax
Description
Exempt services part of the manufacturer's warranty package/Automotive dealership
Topic
Exemptions
Tangible Personal Property
Date Issued
06-10-2013
June 10, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period March 2009 through August 2012.
FACTS
The Taxpayer is an automotive dealership. An audit resulted in the assessment of use tax on untaxed purchases of tangible personal property and sales tax on oil and oil filter changes provided to certain customers at no charge.
The Taxpayer contests the tax assessed on oil and oil filter changes and contends they were part of the manufacturer's warranty package that covered normal factory scheduled maintenance for two years or 25,000 miles. The oil and oil filter changes are part of a package included in the sales price of motor vehicles subject to the motor vehicle sales and use tax. For this reason, the Taxpayer contends that such oil changes should be exempt from the retail sales and use tax.
DETERMINATION
Generally, oil and filter changes are subject to the retail sales and use tax. An exception is made in subsection C of Title 23 of the Virginia Administrative Code (VAC) 10-210-990, which discusses the tax application of repair and replacement parts installed in motor vehicles sold, leased or rented.
-
- The retail sales and use tax does not apply to repair and replacement parts and accessories and oil and grease installed on a motor vehicle before or at the time of sale, lease or rental that are included in the sales price for measuring the motor vehicle sales and use tax or the retail sales and use tax.
Such items may be purchased exempt from the tax by a dealer, lessor or renter of motor vehicles under a Resale Exemption Certificate, Form ST-10. Repair and replacement parts purchased for installation on motor vehicles not held for sale, lease, or rental are subject to the tax. Parts installed on vehicles not used exclusively for demonstrations are similarly subject to the tax. (For repairs of customer-owned vehicles, see 23 VAC 10-210-3050.) [Emphasis added.]
- The retail sales and use tax does not apply to repair and replacement parts and accessories and oil and grease installed on a motor vehicle before or at the time of sale, lease or rental that are included in the sales price for measuring the motor vehicle sales and use tax or the retail sales and use tax.
The above regulation does not address the specific situation in question, i.e., the tax treatment for oil and oil filters that are included in the sales price of a motor vehicle subject to the motor vehicle sales and use tax and installed at various times after the sale of the motor vehicle. Public Document (P.D.) 90-24 (3/5/90) does address a similar situation. In P.D. 90-24, a car dealership often included the cost of warranties in the sales price of motor vehicles subject to the motor vehicle sales and use tax. The Tax Commissioner determined that the fact that the cost price of the warranties were, in some cases, improperly included in the sales price of the automobile, does not exempt the warranties from the retail sales and use tax.
Despite the foregoing, the Taxpayer points out that its treatment is consistent with Title 23 VAC 10-210-10, which applies to warranty work on products.
-
- When any taxable article is returned to the dealer for adjustment, replacement or exchange and the consumer is given a new article free or at a reduced price under a warranty or guarantee, the sales and use tax must be computed on the actual additional amount, if any, paid to the dealer for the new article.
In the instant case, the contested oil and oil filters were returned to the Taxpayer for replacement for those vehicles covered by a warranty or guarantee. New oil and oil filters were installed at no charge to the customer under the manufacturer's warranty package. To support its exemption claim, the Taxpayer cites P.D. 87-262 (11/30/87) in which truck parts returned for servicing under a manufacturer's warranty were not taxed because no charge was made for such parts. The Tax Commissioner ruled that the truck repair business could continue to purchase repair parts used in making the repairs pursuant to a resale certificate of exemption.
Based on the foregoing, I find that the Taxpayer's treatment is indeed consistent with the policy set out in Title 23 VAC 10-210-10. Although P.D. 90-24 is a later ruling, there is no evidence that it was intended as a change in policy to P.D. 87-262. It is my determination that P.D. 87-262 and the policy set out in Title 23 VAC 10-210-10 are on point to the factual situation in the instant case. As such, the contested oil and oil filter changes will be removed from the audit.
CONCLUSION
The audit will be revised in accordance with this determination. Because the contested bill is paid, a refund will be issued as soon as practical to the Taxpayer with refund interest in accordance with Va. Code § 58.1-1833.
The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this matter, please contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
AR/1-5283287405.R
Rulings of the Tax Commissioner