Was a support contract taxable when it covered a hotline and loaner equipment but billed repairs separately?

Plain-English summary

The support contract gave customers access to a toll-free hotline and temporary loaner equipment while their own equipment was being repaired. The contract did not pay for the repair itself; repair charges were billed separately.

The Comptroller nevertheless treated the support contract as taxable because it provided replacement equipment during the repair period. The separately billed charges for repairing the malfunctioning equipment were also taxable in full.

Common questions

Did excluding the actual repair cost make the support contract nontaxable? No.

What feature made the contract taxable? The customer's right to use replacement equipment while its own equipment was repaired.

Were the separate repair charges taxable? Yes, in full.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0952G13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS

STATE OF TEXAS

AUSTIN, 78774

BOB BULLOCK

Comptroller August 24, 1989

Dear ***:

Thank you for your recent letter concerning the taxability of support contracts.

In your telephone conversation on August 23 with Mike Fraser, you indicated that these contracts give a customer the right to use a 1-800 telephone hotline and loaner equipment until the customer's equipment is repaired. The support contract does not cover the cost of repairing the customer's equipment. Those charges are billed to the customer separately.

The loaner equipment is noted stored in Texas. It is shipped to the customer, when necessary, to replace the equipment in need of repair. When the repaired equipment is returned to the customer, the loaner is returned to you.

Sales Tax is due on the sale of extended warranties, service contracts and service policies for the repair of tangible personal property except for motor vehicles, commercial vessels or aircraft. Refer to ruling 3.292, enclosed.

Although your support contract does not cover the cost of the actual repair, it does provide the use of replacement equipment while the broken equipment is repaired. The support contract is subject to Texas sales tax. The charges for repairing the malfunctioning equipment are taxable in total, as well.

This opinion is based on the facts presented. If there are additional or different facts, the opinion may change.

If you have any questions or need more information, please call our toll-free number 1-800-252-5555. The regular number is 512/463-4600. You may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Julie Pesl

Tax Correspondence