Was a motor-vehicle extended warranty taxable, and how did Texas treat parts, labor, and a customer deductible on repairs performed under the warranty?

Plain-English summary

The letter said an extended warranty purchased for an additional amount after the manufacturer's warranty was not taxable for a motor vehicle. When repair work was performed under the warranty, the parts were taxable and the labor was not.

For a repair consisting of $250 of parts and $200 of labor, the customer's $25 deductible was applied to the total $450 charge. The service-policy underwriter was responsible for the remaining balance, including any tax.

STAR now carries an alert that Rule 3.359, the rule cited in the 1991 letter, has been repealed. The alert points readers to Rule 3.290 for motor-vehicle repair issues and Rule 3.280 for aircraft issues.

What this means for you

This page records historical treatment, not a current-law assurance. The letter separated the warranty sale from the later repair components and treated parts differently from labor, but its cited rule is no longer in force.

Common questions

Was the described motor-vehicle extended warranty taxable? No, under the 1991 letter.

Were parts used in covered repairs taxable? Yes.

Was the repair labor taxable? No.

Did the deductible apply only to parts? No. It was applied to the total repair charge.

Citations and references

• 34 Tex. Admin. Code Rule 3.359 — cited in the original letter and now repealed
• 34 Tex. Admin. Code Rule 3.290 — identified by STAR for motor-vehicle repair issues
• 34 Tex. Admin. Code Rule 3.280 — identified by STAR for aircraft issues

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9109L1144D03

Original ruling text

ALERT: The cited rule, Rule 3.359 has been repealed. See Rule 3.290 for issues relating to Motor Vehicle repairs. See Rule 3.280 for issues relating to Aircraft.

September 6, 1991

Dear ***:

Thank you for your recent letter regarding the taxability of extended
warranties.

An extended warranty is sold to the buyer of the product for an
additional amount. The provisions of an extended warranty become effective
after the manufacturer's warranty expires. The sale of an extended warranty
for a motor vehicle is not taxable. Parts used in performing services under
the warranty are taxable and the labor is not taxable.

You also asked about the taxability of the deductible under the following
example:

Parts $250; Labor $200 = Total $450.

The customer pays a $25 deductible and Chrysler pays the remaining
balance. The deductible paid by the owner of the motor vehicle is applied to
the total charge and the service policy underwriter (Chrysler) should pay the
balance including tax, if any. the parts are taxable, but the labor is not.

Comptroller Rule 3.359 on Motor Vehicles and Private Aircraft is enclosed
for your reference.

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, you may call me toll
free at 1-800-531-5441, extension 5-0330. The regular number is
512/463-4600, or write Tax Administration Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division