Navigating Divergent State Sales Tax Treatment of Product and Service Warranties and Software Maintenance Contracts

Description

Whether a company acts as buyer or seller, sales of warranties or maintenance contracts covering various products (along with associated labor and parts) are an area of state sales tax policy with considerable variation and confusion for multi-state corporations.

In many states, a service agreement that must be bought with a product is taxed, while an optional warranty is exempt. However, optional software maintenance agreements often are handled differently. Sales tax on parts and labor may depend on whether the warranty is mandatory or optional and who backs it.

Depending on the state, buyers and sellers may need to consider whether the “true object” of a warranty contract sale was a product or service; whether the deductible for warranted repairs is taxable; and whether withdrawal of repair parts from inventory constitutes a taxable sale.

Listen as our experienced state tax adviser provides a practical guide to the latest developments in state sales tax treatment of warranties to effectively manage this complex aspect of multi-state sales tax compliance.

Outline

1. General state tax issues with warranties
   1. Treatment of mandatory vs. optional warranties
   2. Handling of contracts covering physical products vs. software
   3. Special issues with extended warranties
   4. Taxability or exemption parts and labor
2. More complex issues with warranties
   1. States that impose “true object” tests
   2. When and where using third-party warranty administrator can trigger sales tax nexus
   3. Handling of inventory withdrawals of repair parts
   4. Taxability of deductibles
3. Specific large state examples
4. Options for adjusting a multi-state tax compliance strategy

Benefits

The panelist will bring you current on these and other critical areas:

• Variations among states’ sales tax policies covering mandatory vs. optional or extended warranties
• Software maintenance agreements: which states opt to treat service contracts differently when they cover software vs. a tangible product
• Potential nexus traps: when using a third-party warranty administrator can create sales tax duties for your company in a state
• Current hot topics: impact of state court and administrative rulings; issues such as extended warranties purchased online

Learning Objectives

After completing this course, you will be able to:

• Recognize recent state sales tax developments and changes to sales and use tax treatment of tangible products related to warranties
• Identify states that impose sales and/or use tax on software maintenance agreements
• Determine how states include associated parts and labor on warranty work as subject to sales tax
• Discern whether your company’s sales tax policies on warranty sales or purchases are in compliance with current multi-state developments

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).

CPE Credit

Strafford is a NASBA CPE sponsor and our live webinars qualify for CPE credits. They offer you a high quality, cost effective, and convenient CPE option, with no lost travel time or expenses.

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