Tax Type
Retail Sales and Use Tax
Description
Extended automobile warranties
Topic
Taxability of Persons and Transactions
Date Issued
09-21-1989
September 21, 1989
Re: §58.1-1821 Application/Sales and Use Tax
Dear**************
This will reply to your letter of June 1, 1989 on behalf of ********* (Taxpayer), seeking correction of the sales and use tax assessed for the period of October 1985 through September 1988.
FACTS
Taxpayer is an automobile dealership selling new and used motor vehicles. In the course of business, the taxpayer sells extended warranties which are underwritten by insurance companies or manufacturers.
The taxpayer seeks relief from the penalty and interest assessed in the audit. In addition, the taxpayer requests a credit for taxes erroneously charged to and collected from insurance companies and manufacturers for parts which should have been covered under extended warranty agreements. Finally, the taxpayer requests that the tax assessed on extended warranty plans for the period of October 1985 through March 1987 be abated.
DETERMINATION
It has been the department's consistent policy since 1966 to tax warranty plans which include parts. The exception to this policy would be those plans which are issued by regulated insurance companies. While it is true that an erroneous ruling was issued by this department, the taxpayer did not sell plans of the type involved in the ruling. It is specifically stated in my ruling of March 20, 1987 that, "absent specific written instructions from the department to a particular dealer to the contrary, the total price of all extended warranty plans and/or vehicle service contracts issued by Virginia automobile dealers is subject to the tax...". For these reasons, the extended warranties in question were properly held taxable in this audit.
Assessment of penalty on audits is determined by the level of compliance exhibited by the taxpayer. Compliance on second generation audits must meet 75% on sales and 50% on purchases. Compliance in this audit was 52.64% on sales and 20.14% on purchases, therefore, penalty was assessed. However, due to the confusion on the tax application to warranty plans, I will abate the penalty associated with the sales portion of this audit. Interest is mandatory as required by law and cannot be waived unless the associated tax is waived.
In reference to the credit of sales and use taxes paid on parts which were supplied under the extended warranty plans, I will credit the tax paid on parts covered by warranty plans against the tax assessed on warranty plans during the audit period. A representative of the department will contact the taxpayer in order to make the appropriate adjustments.
If you have any further questions regarding this matter, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner