Could an out-of-state optional-warranty company give a California appliance repairer a resale certificate for repair parts?

Plain-English summary

An out-of-state company hired a California appliance service company to fulfill the out-of-state company's optional warranty obligations. The repairer separately billed labor and parts.

California treated the out-of-state warranty company as the consumer of the parts, regardless of who supplied them. The repairer was therefore the retailer and had to charge tax on the separately stated fair retail selling price of the parts.

The warranty company could not issue a resale certificate for parts known to be purchased for optional-warranty consumption. The rule allowing later self-reporting applied only when property was originally bought for resale before it was known which items would be consumed.

Common questions

Who was the consumer of the repair parts?

The out-of-state company obligated under the optional warranty.

Was the California repairer's part sale taxable?

Yes.

Could the warranty company issue a resale certificate?

Not for parts known to be used in the optional-warranty repair.

How was repair labor treated?

It was separately stated from the taxable part price under Regulation 1546.

Citations and references

• Cal. Code Regs., tit. 18, reg. 1655(c)(3) — optional-warranty obligor as consumer
• Cal. Code Regs., tit. 18, reg. 1546 — repairer as retailer of parts and invoice segregation

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/490-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/490-0495.pdf

Original ruling text

490.0495

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

WILLIAM M. BENNETT
First District, Kentfield

1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-2641

BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

December 21, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

Ms. S--- R--R--- A--- S--XXX --- ----- ---, CA XXXXX
SR -- XX-XXXXXX
Dear Ms. R---:
This is in response to your letter of October 5, 1992. You state that you are hired by M--to do appliance repairs in California to fulfill M---’s obligations under optional warranties. When you bill M---’s you have been separately stating your labor and parts, and charging sales tax on the parts. M---’s has objected to paying the tax and has given you a resale certificate. You were given a copy of Regulation 1655 which applies to returns, defects, and replacements. The first half of Regulation 1655(c)(3) reads as follows: “The person obligated under an optional warranty contract to furnish parts, materials, and labor necessary to maintain the property is the consumer of the materials and parts furnished and tax applies to the sale of such items to him.” The person obligated under the optional warranties is M---’s. This makes M---’s the consumer and requires M---’s to pay tax on all parts and materials purchased. It does not matter from whom the parts are purchased. Once M---’s is defined as the consumer, it is not proper for M---’s to provide a resale certificate. M---’s may believe that they may purchase parts for resale, and then report and pay the tax directly under the second half of Regulation 1655(c)(3) which reads:

Ms. Sharon Rabbiosi

-2-

December 21, 1992
490.0495

“If he purchased the property for resale, without tax paid on the purchase price, he must report and pay tax upon the cost of such property to him....” But this applies to situations where parts are purchased for resale before it is known that they will be used for repair work under an optional warranty. You are the retailer of the parts to M---’s. Under Regulation 1546 you are required to segregate on your invoices the fair retail selling price of the parts and materials, from the charges for repair and installation labor. It is possible that M---’s misread annotation 315.0320 which concerns subcontracting of repairs. But, that annotation applies to the subcontracting of normal repairs, wherein the owner having the repair work done pays for that specific repair. It does not apply to the referring out of work obligated under an optional warranty. If you have further questions, please contact me. Sincerely yours,

Donald L. Fillman
Tax Counsel
DLF:wk