How should a television repairer tax a lump-sum picture-tube replacement, overhaul, and one-year parts-and-labor warranty?

Plain-English summary

A television repairer charged one lump sum to replace a used set's picture tube, overhaul the rest of the television, install other parts as needed, and guarantee all parts and labor for one year.

California treated the repairer as the retailer of every part furnished, both during the original overhaul and later under the warranty. Sales tax therefore applied to the selling price of those parts.

The repair labor was exempt. Because the customer paid one combined amount for taxable parts and exempt labor, California said the parts should be measured at their fair retail price and suggested working with the local office on an acceptable valuation procedure.

Common questions

Was the entire lump-sum charge taxable?

No. Repair labor was exempt.

Were warranty replacement parts taxable?

Yes. The repairer remained the retailer of parts furnished under the warranty.

How was the parts amount determined?

By the parts' fair retail price.

Citations and references

• California repair-labor and parts rule — applied fair retail value to taxable parts within the lump-sum television service

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/490-0560.pdf

Original ruling text

490.0560

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.