Was a separately stated optional road-hazard warranty sold with a tire subject to Texas sales tax?

Plain-English summary

The seller offered an optional, separately stated road-hazard warranty beginning 90 days after a tire sale. It covered hazards such as nails, not defects in materials, and provided repair or a tread-based discount on a replacement tire.

The Comptroller said motor-vehicle repair labor was nontaxable, as was a warranty covering motor-vehicle repairs. Because an installed tire became a component part of the vehicle, the separately stated warranty charge was not taxable.

The warrantor still owed Texas sales or use tax on all items used to perform covered tire repairs.

What this means for you

The letter tied warranty treatment to the covered repair and the installed tire's status as a vehicle component. It also separated the customer's nontaxable warranty charge from the provider's taxable repair inputs.

Common questions

Was the optional road-hazard warranty taxable? No, when separately stated under the described facts.

What did it cover? Road hazards rather than manufacturing defects.

Who paid tax on repair materials? The warrantor.

Citations and references

The letter did not cite a specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1100A01

Original ruling text

April 16, 1991

Dear **:

Thank you for your letter concerning road hazard warranties sold
in connection with tires.

You stated that the warranty is optional and the fee is listed as
a separate item on the tire sales ticket. The warranty, which
begins ninety days after the sale, is in addition to the manufac-
turer's warranty. It covers road hazards such as running over a
nail and has nothing to do with defects in materials. The tire
will either be repaired or the customer can buy a replacement tire
at a discount based on the amount of usable tread left on the old
tire.

The labor to repair a motor vehicle is not taxable. The sale of a
warranty that covers repairs of a motor vehicle is not taxable
either. Once installed, a tire is a component part of a motor
vehicle. Therefore, the separately stated charge for a road
hazard warranty is not taxable. ** will owe Texas sales or
use tax on all items used to perform warranted repairs to the
tires.

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

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 from
anywhere in the United States or phone 512/463-4600.

Sincerely,

Julie Pesl
Tax Administration Division