A manufacturer uses a third-party service company to handle its warranty repair claims (both original manufacturer's warranty and separate extended warranty). Is that third-party service provider required to charge the manufacturer Texas sales tax on its parts-and-labor claims — and does the answer differ for a regular manufacturer's warranty versus an extended warranty?

Plain-English summary

A manufacturer asked the Comptroller to clarify Rule 3.292's treatment of manufacturer's warranties in a specific scenario: the manufacturer uses a THIRD-PARTY service company to handle warranty repair claims on its behalf, rather than servicing the claims itself. The manufacturer's specific question was whether that third-party service company is obligated to charge the manufacturer Texas sales tax on its claim for parts and labor — noting that Rule 3.292(e)(1)(A) and (B) didn't seem to directly address this three-party arrangement. The manufacturer also asked how the same scenario would be handled for a separate, EXTENDED warranty.

The Comptroller's answer split cleanly along the type of warranty:

Original manufacturer's warranty: The manufacturer may give the third-party service company an EXEMPTION certificate for the labor and material charges the service company incurs fulfilling the manufacturer's warranty obligations to its customers — meaning no sales tax is due on those charges.

Extended warranty: The manufacturer instead gives the third-party service company a RESALE certificate for the labor and material charges used to fulfill the extended warranty obligations. This resale-certificate treatment covers service contracts for tangible personal property generally, but with one specific carve-out: it does NOT apply to motor vehicles and aircraft.

What this means for you

Manufacturers outsourcing warranty repair work to third-party service companies

You can avoid paying sales tax on your third-party service provider's parts-and-labor charges — but the CORRECT certificate type depends on which kind of warranty you're servicing: an exemption certificate for your original manufacturer's warranty, versus a resale certificate for a separate extended warranty.

Third-party warranty service providers

Confirm which certificate type (exemption vs. resale) you're receiving from the manufacturer and why — the correct type depends on whether you're servicing the manufacturer's original warranty or a separate extended warranty program, and the resale-certificate route for extended warranties doesn't apply if the underlying product is a motor vehicle or aircraft.

Businesses selling motor vehicles or aircraft with extended warranty programs

Note the specific carve-out here: the resale-certificate treatment for third-party extended-warranty service work does NOT extend to motor vehicles or aircraft — confirm the correct tax treatment for those product categories separately.

Common questions

Q: Does a third-party service company have to charge my company (the manufacturer) sales tax on parts and labor for warranty repairs?
A: No, if you give the service company an exemption certificate (for your original manufacturer's warranty) or a resale certificate (for an extended warranty).

Q: Is the certificate type the same for a regular warranty and an extended warranty?
A: No — an exemption certificate applies to the original manufacturer's warranty, while a resale certificate applies to an extended warranty.

Q: Does the resale-certificate treatment for extended warranties apply to all products?
A: No — it specifically excludes motor vehicles and aircraft.

Q: Can I rely on this letter for my own warranty servicing arrangement?
A: No. It's based on the facts presented, and the letter notes the opinion may change on additional or different facts.

Citations and references

• 34 Tex. Admin. Code Rule 3.292(e)(1)(A)-(B) (warranty/maintenance agreements, referenced as the provision needing clarification)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9802476L

Original ruling text

February 26, 1998

**:

Thank you for your recent letter to Delia Gaona. I have been asked to respond.

We would like a clarification of Texas Regulation 34 TAC Sec. 3.292 in
particular the portion of this section that pertains to manufacturer's
warranties.

Specifically, if we use a third-party service provider to service our warranty
claims, is that service provider obligated to charge the manufacturer Texas
sales tax on his claim for parts and labor? Section 3.292(e)(1)(A) & (B) does
not appear to address this situation.

Response: The manufacturer may give the third-party service company an
exemption certificate for labor and material charges to fulfill the
manufacturer's warranty responsibilities to its customers.

Likewise, how would this same situation be addressed in the case of a
manufacturer's extended warranty?

Response: The manufacturer may give the third-party service company a resale
certificate for labor and material charges to fulfill the manufacturer's
extended warranty responsibilities to its customers. This includes service
contracts for tangible personal property with the exception of motor vehicles
and aircraft.

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

You may call me toll free at 1-800-531-5441, ext. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division