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Sales Tax State Activity Update - December 2006

South Carolina - Warranties, Maintenance and Service Contracts, Warrant an Examination

The South Carolina Department of Revenue recently issued Revenue Ruling 06-9 which outlines their position on the taxability of warranty, maintenance and similar service contracts. The effective date of the provisions in the ruling is October 1, 2006.

Code Sections 12-36-910(B)(6) and 12-36-1310(B)(6) impose the sales and use tax on the gross proceeds accruing or proceeding from the sale or renewal of warranty, maintenance, or similar service contracts for tangible personal property, whether or not such contracts are purchased in conjunction with the sale of tangible personal property.

Code Section 12-36-2120 exempts from the tax the sale or renewal of a warranty, maintenance, or similar service contract for tangible personal property if the sale or purchase of the tangible personal property covered by the contract is exempt or excluded from the tax imposed by this chapter. An example would be motor vehicle extended service contracts and motor vehicle extended warranty contracts are exempt.

The ruling also points out that sales tax also applies to the "fair market value of tangible personal property previously purchased at wholesale which is withdrawn from the business or stock and used or consumed in connection with the business.

Code Section 12-36-90(1) (c) (iii) excludes from the tax tangible personal property replacing defective parts under written warranty contracts if:

(A) given without charge, at the time of original purchase of the defective property, or the tax was paid on the sale or renewal of warranty, maintenance, or similar service contract for tangible personal property of which the defective part was a component, whether or not such contract was purchased in conjunction with the sale of tangible personal property,

(B) given without charge at the time of original purchase of the defective property, the tax was paid on the sale of the defective part or on the sale of the property of which the defective part was a component, and

(C) the warrantee is not charged for any labor or materials.

The full text may be accessed on the South Carolina Department of Revenue Website.

(South Carolina Department of Revenue, Revenue Ruling 06-9, 11/16/2006)

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