Does a repairman owe Texas sales/use tax on warranty forms and cards bought from an out-of-state retailer, or can the repairman use an exemption certificate instead?

Plain-English summary

The Comptroller's office answered two connected letters from the same repair-service taxpayer. The taxpayer (a repairman of consumer electronic products) bought warranty forms/cards from an out-of-state forms retailer, COMPANY A. COMPANY A refused to accept the taxpayer's exemption certificate for that purchase and instead charged Texas sales/use tax.

The Comptroller sided with COMPANY A on both points raised:

1. COMPANY A had to collect the tax. COMPANY A was affiliated with COMPANY B, which had five active outlets in Texas under its own permit. That Texas presence made COMPANY A "engaged in business in Texas," so it was required to either collect and report Texas sales/use tax on its sales into Texas or make a good-faith acceptance of a resale/exemption certificate — and a seller cannot accept a certificate in good faith if it knows the item won't actually be resold or used exempt.

2. The taxpayer's exemption certificate did not cover these forms. Under Rule 3.292(c), a repairman must pay sales or use tax on consumable supplies, tools, and equipment used to perform a repair that are NOT transferred to the customer's care, custody, and control — and the letter specifically calls out "office supplies, i.e., forms such as warranty forms" as an example of taxable supplies. Under Rule 3.292(e)(1)(B), a repairman/service provider may only issue an exemption certificate for the tax-free purchase of parts used in a manufacturer's warranty or recall repair — not for forms or paperwork.

The taxpayer followed up arguing that the manufacturer requires use of the warranty form instead of an invoice, making the form "part of the repair transaction." The April 7, 1993 letter rejected that argument too: a manufacturer can buy warranty cards tax-free as wrapping/packaging supplies when they're bundled into a finished packaged product, but a repairman doesn't get that exemption because a repairman sells a repair service, not a finished product. The repairman also isn't reselling the cards to customers — the cards are merely proof of a guarantee — and the fact that the form stands in for an invoice actually reinforces (rather than undercuts) that it's a taxable supply used in the repairman's own business.

What this means for you

Repair shops and service providers

If you buy forms, paperwork, or other consumable supplies to run your repair business — even ones a manufacturer requires you to use, like a warranty card — you generally owe Texas sales/use tax on them. Your resale/exemption certificate only works for parts that get physically transferred to the customer as part of a manufacturer's warranty or recall repair; it does not extend to your own office supplies or administrative forms, even if a manufacturer mandates their use.

Out-of-state sellers shipping into Texas

If your company is affiliated with another business that already has retail outlets or a permit in Texas, that affiliate's Texas presence can be enough to require you to collect and remit Texas tax on your own sales into the state — you can't rely on being "out of state" yourself. You're also expected to refuse a resale/exemption certificate in good faith if you know the buyer isn't actually going to resell or exempt-use the item.

Manufacturers packaging warranty cards

The letter draws a clean line: a manufacturer can buy warranty cards and similar inserts tax-free as packaging supplies when they ship inside the finished packaged product. That specific exemption belongs to the manufacturer selling a finished product — it does not pass through to a repairman who is providing a service.

Common questions

Q: I'm a repairman and a manufacturer requires me to use their warranty form instead of my own invoice. Does that make the form exempt?
A: No. The Comptroller specifically rejected this argument. Requiring the form in place of an invoice just confirms it's a supply used in running your repair business, not a product you resell to the customer — so it's still taxable.

Q: Can I use my resale/exemption certificate to buy warranty forms tax-free?
A: No. Under Rule 3.292(e)(1)(B), a repairman's exemption certificate is limited to parts used in a manufacturer's warranty or recall repair. Forms and other office supplies fall under Rule 3.292(c) as taxable consumable supplies because they aren't transferred to the customer's care, custody, and control.

Q: Why did the out-of-state seller charge me Texas tax instead of accepting my certificate?
A: Two reasons given in the letter: the seller (COMPANY A) was affiliated with a company that had five active Texas outlets, so it was itself obligated to collect Texas tax on sales into Texas; and a seller may not accept an exemption certificate in good faith once it knows the item won't be resold or used exempt.

Q: Can a manufacturer buy warranty cards tax-free?
A: Yes, but only when the manufacturer includes the card as part of a packaged finished product it sells — that's the wrapping/packaging-supplies exemption. A repairman selling a repair service, not a finished product, doesn't qualify for that same exemption.

Citations and references

Rules cited:

• 34 Tex. Admin. Code Rule 3.292(c) — repairmen owe tax on consumable supplies (including forms) not transferred to the customer's care, custody and control
• 34 Tex. Admin. Code Rule 3.292(e)(1)(B) — repairman's exemption certificate limited to parts used in a manufacturer's warranty or recall repair

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9304122L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017).

April 7, 1993

Dear **:

This is in response to your follow-up letter concerning my response to the

taxability of COMPANY A Warranty Forms that you purchase.

You argue that the manufacturer requires that you use the warranty form instead

of your invoice, thus making it a part of the repair transaction.

A manufacturer is entitled to purchase warranty cards and other inserts tax

free as wrapping and packaging supplies, if they are included as part of

packaged finished product. A repairman is not entitled to this exemption

because the repairman is selling a repair service and not a finished product.

Likewise, you are not reselling the warranty cards to your customers, but

merely providing them as a guarantee from you (or the manufacturer) that the

repairs are covered for a specific period of time. The fact that the warranty

form is used in lieu of a repair invoice further validates the taxability of

this item.

This opinion is based on the facts presented. Other facts though similar may

provide a different result.

If you have other questions or need more information, you may call me at

l-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may

also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora

Tax Administration Division

February 1, 1993

Dear **:

This is in response to your letter concerning the taxability of warranty forms

used by manufacturers of consumer electronic products and the obligation of an

out-of-state retailer engaged in business in Texas to collect and report Texas

sales and use tax.

SITUATION

An out-of-state retailer of forms, ** (COMPANY A), is declining to

accept an exemption certificate issued by your company for the purchase of

warranty repair forms. You contend that these forms are required by exempt

customers to execute exempt transactions (warranty claims) and are thus exempt.

RESPONSE

COMPANY A is affiliated with COMPANY B (Permit No. **) of

**, Illinois, which has five active outlets in Texas. As such,

COMPANY A is required to collect and report Texas sales and use tax on all

sales made in or into Texas or make a good faith acceptance of a resale or

exemption certificate in lieu of tax. A retailer may not accept a resale or

exemption certificate in good faith if it knows at the time of sale that the

item will not be resold or used in an exempt manner.

A repairman must pay sales or use tax on all consumable supplies, tools, and

equipment which are purchased for use in the performance of the repair but

which are not transferred to the care custody and control of the customer.

Supplies would include office supplies, i.e., forms such as warranty forms. See

section (c) of Rule 3.292, concerning repairmen.

As a service provider, you may only issue an exemption certificate for the tax

free purchase of parts to be used in repairs under a manufacturer's warranty or

recall. See section (e)(l)(B) of Rule 3.292.

This opinion is based on the facts presented. Other facts though similar may

provide a different result.

If you have other questions or need more information, you may call me at

1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may

also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora

Tax Administration Division