Was a washing-machine manufacturer's mandatory warranty charge taxable when the retailer passed it to the customer?

Plain-English summary

A washing-machine manufacturer charged the retailer for a warranty, and the retailer passed that amount on to the customer. If a defect arose, the manufacturer supplied the parts and reimbursed the retailer for labor.

California treated the warranty as mandatory and integral to the appliance sale. The amount charged to the customer therefore was included in the taxable measure.

The memorandum distinguished an optional television warranty, which could be treated as a separate transaction because the customer was free not to buy it.

Common questions

Was the manufacturer warranty charge taxable?

Yes, on the mandatory facts described.

Why did passing the factory charge through matter?

It became part of the amount the customer had to pay for the washing machine and its required coverage.

Would a genuinely optional warranty have the same treatment?

No.

Citations and references

• California mandatory-warranty rule — a required manufacturer warranty charge was an integral part of the appliance sale

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/490-0600.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

490.0600

Date:
To:

From:

Bill Holden

Re:

Sacramento, California
September 11, 1953

Account No. -- -- XX-XXXXXX

The question presented in your memorandum of October 17 is whether a particular sum billed by a retailer to his customer as a warranty is included in the measure of the sales tax imposed upon the sale of a washing machine. The factory charges the retailer for the warranty and the retailer passes the charge along to his customers. The manufacturer is the warrantor and in case of defect the manufacturer supplies the parts and reimburses the retailer for the labor. It is our opinion that the warranty is included in the measure of the sales tax. the only basis for regarding certain television warranties as not subject to the tax is that the customer has complete freedom not to buy the warranty. On that basis, we can regard the sale of such an optional warranty as a completely separate transaction. In this case, however, if our understanding of the facts is correct that this is a mandatory warranty, the warranty is obviously an integral part of the sale and the amount charged is therefore subject to the tax.

Bill Holden
BH:ja