How was a lump-sum used-television overhaul with replacement parts and a one-year guarantee taxed?

Plain-English summary

A repairer replaced the picture tube in a used television, overhauled the rest of the set, installed parts as needed, and guaranteed parts and labor for one year, all for a lump-sum price.

California treated the repairer as the retailer of parts furnished either during the original overhaul or later under the warranty. Sales tax applied to the parts' selling price, while repair labor was exempt.

Because the customer paid one lump sum for taxable parts and exempt labor, the source recommended establishing the parts' selling price at fair retail value through an acceptable procedure worked out with the local tax office.

Common questions

Were warranty replacement parts included?

Yes.

Was repair labor taxable?

No.

How was the parts amount determined?

By fair retail price under the source's recommended allocation.

Citations and references

The supporting opinion does not cite a specific statute or regulation.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/315-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/315-0880.pdf

Original ruling text

315.0880

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 21, 1955
Your letter of June 20
V--- S--XXXX --- --- Boulevard
--- --- X, California
Attention:

F-X-XXXXX

Mr. B. F. C--General Manager

Gentlemen:
You inquire concerning the application of tax to a transaction in which for a lump-sum price you replace the picture tube in a used television set, overhaul the rest of the set, install new parts where needed, and guarantee all parts and labor for one year. It is our opinion that you are the retailer of whatever parts are furnished, whether furnished originally or pursuant to the warranty. However, the transaction also involves exempt repair labor. Accordingly, sales tax applies to the sale price of the parts. Since the transactions are for a lump sum to include both taxable parts and exempt repair labor, we believe that the most satisfactory method of establishing the sale price of the parts is to regard them as sold at the fair retail price. It is suggested that the fair retail price of the parts furnished can be established by consultation with a representative of our San Diego office, 3621 5th Avenue, telephone Cypress 6-6211. Very truly yours,

Bill Holden
Assistant Tax Counsel
BH:tj

cc:

--- --- – Auditing:
It would be advisable to meet with this taxpayer and work out an acceptable procedure for establishing the fair retail price of the parts.