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[Author: Tom Junge, Iowa Field Director, 2016 | Keywords: Iowa Legislation, Sales Tax, Warranty]

With the influx of extended warranty sales by dealers (John Deere PowerGard, Case Protection Plan, New Holland Purchased Protection Plans and AGCO Protection) and the number of calls I have received from dealers since this topic was mentioned in the November Retailer, I felt it would be good to revisit this topic. Hopefully, the table below will cover this topic in a simple, easy-to-read format.

Iowa Sales Tax Table Dealer to Customer Dealer to Manufacturer
Sale of Base/Mandatory Warranty The cost of the base warranty is part of the cost of the item. It is presumed that any applicable sales tax was collected at the time the warranty was put into effect.

IA Code 701 – 18.25(2)

 
Performing Base

Warranty Work

Labor and parts covered under the warranty are not taxable.

 

Additional charges for parts (except qualifying replacement parts) furnished in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.

No sales tax is charged to the manufacturer for labor or parts.

 

The sale of replacement parts and materials to the seller furnishing them thereunder is a sale for resale and not taxable. Labor performed under a mandatory warranty which is in connection with an enumerated taxable service is also exempt from tax.

     
Sale of Optional/Extended Warranty Contract The price of the optional or extended warranty is taxable since it may furnish a taxable service (labor) and parts.

IA Code 701 – 18.25(3)

 
Performing Optional/Extended

Warranty Work

Labor and parts covered under the warranty are not taxable (see warranty deductible below).

 

Additional charges for parts furnished (except qualifying replacement parts), in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.

No sales tax is charged to the manufacturer for labor or parts.

 

 

The sale of replacement parts and materials to the seller furnishing them thereunder is a sale for resale and is not taxable. Labor performed under a mandatory warranty which is in connection with an enumerated taxable service is also exempt from tax.

     
Warranty Deductibles Sales tax is collected on the deductible amount if taxable parts and/or labor are provided.  
     
Sale of Preventive Maintenance Contract A preventive maintenance contract only requires the visual inspection of equipment; repair is not included.

 

The sale of a preventive maintenance contract is not subject to tax.

IA Code 701 -18.25(4)

 

Additional charges for parts (except qualifying replacement parts) furnished in addition to what is covered by a warranty or maintenance contract are taxable. Any labor not covered under the contract is also subject to tax if a taxable service is performed.