Service Agreement Taxable

They calculate the $50 deductible to the customer and charge the manufacturer the balance of parts, labor and revenue tax: $151.55 $US (total fee of $201.55 – $50 deductible$US). If you had issued the guarantee yourself, you will have to pay taxes on the taxable part of the deductible (see step 3 above). If the customer pays a deductible, the tax on the fraction of the deductible applies to the cost of the parts (see example for the calculation method). Unless otherwise specified in the warranty, the person providing the warranty contract is responsible for this amount. If the customer makes a specific payment for parts, as required by the warranty (e.g. B a pro rata payment for a new tyre), this payment is taxable. Service contracts can also be sold directly by third parties to consumers after the purchase of an item. Third-party service contracts are often purchased by consumers at the time when the warranty for an item from the original manufacturer expires soon. These sales are also subject to turnover tax and the applicable tax rate is the combined national and local rate applicable on the site of the good covered by the service contract, and not that of the seller`s location. Consumers do not pay for repairs covered by a service contract. However, consumers must pay taxes on additional charges for repairs that are not covered by the service contract.

The turnover tax is based on the rate applicable to the place where the customer takes possession of the repaired item which may be at the location of the repair shop, apartment or store of the customer when the repaired item is delivered there. A separate fee for an optional software maintenance contract is taxable at 50 percent if you provide physical products to the buyer during the term of the contract (for example.B. your customer receives software updates on CD). If you do not transfer hardware updates or other physical personal belongings to your customer during the maintenance contract, the contract fee is not taxable (for example.B. download the customers` software updates from a website and no CD or other hardware media containing the update is sent). For more information, see Regulation 1502, Computer, Programs, and Data Processing. Extended warranties to cover unexpected repair costs are not taxable. However, sales or use tax applies to parts used for contractually agreed repairs.