Indiana Revenue Ruling #2010-09 ST    

The Indiana Department of State Revenue released Revenue Ruling #2010-09 ST in January 2011 regarding sales and use tax on real estate improvement repair contracts.

ISSUE:  The ruling discussed (1) whether a taxpayer has a duty to collect and remit Indiana sales tax on the monthly or annual fees it receives from its customers under its real estate improvement repair service contracts or (2) whether it has the duty to remit sales or use tax on the tangible personal property used to make repairs under such contracts.

DISCUSSION:  The Department's Sales Tax Information Bulletin #60 explains, in pertinent part, the application of the foregoing provisions to construction contractors: If a construction contractor purchases construction materials pursuant to a lump sum contract, the construction contractor pays either: (1) sales tax at the time the construction materials are purchased, or (2) use tax at the time the construction materials are incorporated into real property if the contractor purchased or acquired the construction materials exempt from sales tax and the owner of the real property could not have purchased the materials exempt from sales tax.
 

However, the Department's Sales Tax Information Bulletin #2 provides in relevant part: Optional extended warranties and maintenance agreements may either be purchased alone, or purchased as an option with the sale of the covered product. Typically, the terms of these agreements provide assurances that any required service and parts will be provided in the event of a break down or malfunction of the covered product....

Optional warranties and maintenance agreements that contain the right to have property supplied in the event it is needed are subject to sales tax if there is a reasonable expectation that tangible personal property will be provided. Any parts or tangible personal property supplied pursuant to this type of agreement are not subject to sales or use tax. The supplier of the parts or property is not liable for the use tax on the parts or property because the supplier is using the material to fulfill the service called for by the terms of the warranty or maintenance agreement. A merchant that maintains an inventory of parts for resale and uses some of the parts in fulfilling the terms of the warranty or maintenance agreement is not required to self assess use tax on any parts so used.

RULING:  According to the ruling, the taxpayer currently has a duty to collect and remit Indiana sales tax on the monthly or annual fees it receives from its customers under its real estate improvement repair service contracts for each of the following items: furnaces, boilers, water heaters, heat pumps, central air conditioning units, inside water lines, inside electric lines, and inside gas lines.  Correspondingly, the taxpayer has no duty to remit sales or use tax on the tangible personal property used to repair each of the following items pursuant to the real estate improvement repair service contracts: furnaces, boilers, water heaters, heat pumps, central air conditioning units, inside water lines, inside electric lines, and inside gas lines.

This ruling was issued to the taxpayer requesting it based on the facts and circumstances as stated in the ruling.  If the facts and circumstances change or are materially different, this ruling may not be relied upon.

If this ruling may apply to your business, please contact Mike Cameron at (812) 491-1394 or mcameron@hsccpa.com for further discussion.

Indiana Revenue Ruling #2010-09 ST January 2011