How did California tax mandatory and optional television parts warranties and a labor-only service warranty?

Plain-English summary

California distinguished three television warranty arrangements.

A mandatory parts warranty was part of the television's taxable gross receipts. Replacement parts furnished under that coverage were treated as included in the original sale, so the retailer could buy them for resale and owed no separate tax when supplying them.

Under an optional parts warranty, the warranty seller was the consumer of parts, materials, and supplies and owed tax measured by its purchase price. A service warranty assumed to provide no parts or other property was not added to taxable gross receipts.

Common questions

Was a mandatory parts-warranty charge taxable?

Yes.

Who consumed parts under optional coverage?

The warranty seller.

Was the labor-only service warranty taxable?

The memorandum said its additional charge did not appear to be taxable, assuming no property was furnished.

Citations and references

• Historical California Ruling 67 — mandatory-warranty replacement parts treated as included in the original 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/490-0740.pdf

Original ruling text

State of California

Board of Equalization

490.0740

Memorandum

To:

Mr. J. S. Knight

From:

E. H. Stetson

Subject:

G--- E. D---, Inc.
XXXX --- --- ----- --- X

Date:

Sacramento
May 2, 1950

Account No. -- - XXXXX

This is with further reference to your memorandum of March 24 which we discussed in your office recently. In our opinion the retailer of a television set who sells a parts warranty to the purchaser, which warranty is mandatory, is required to return the tax to the State on the total charge, inclusive of the charge for the warranty. We believe that the charge for the warranty is properly regarded as a part of gross receipts from the sale of tangible personal property and, pursuant to Ruling 67, Replacement Parts, the tax does not apply with respect to the furnishing of replacement parts by the retailer pursuant to the warranty. The sale of such parts as are furnished pursuant to the warranty will be regarded as included within the original sale and such parts may, of course, be bought by the retailer under a resale certificate and he does not become liable for tax on the cost thereof. In the event the parts warranty is optional, it is our opinion that the seller of the warranty should be treated as the consumer of such parts, materials, and supplies as he may furnish under the warranty subject to tax measured by the purchase price of such parts, materials, and supplies to him. In the case of a service warranty, it does not appear that an additional amount charged therefore may be regarded as part of gross receipts subject to tax. Presumably, under such a warranty, no parts would be furnished. As we understand it, no property would be furnished pursuant to the terms of the service warranty.

EHS:ph