Sale of extended warranty services to repair, support, or maintain tangible personal property or digital property that is taxable to the warranty holder. Sales tax will spply to the service contract agreements sold on or after July 1, 2018.
The sale of extended warranties by automobile dealers on or after July 1, 2018 is subject to the 6% sales tax. The dealers should report the tax collected on the sale of extended warranties on their sales and use tax return (Form 51A102) for the tax period in which the sale occurs.
Guaranteed Auto Protection (GAP) Insurance and Credit Life Insurance:
The sale of GAP insurance and credit life insurance are not subject to sales tax.
VIN Etching, Paint Protection, and Rustproofing:
Charges for etching identification numbers, paint protection, and rustproofing underbodies of vehicles are subject to tax.
If provided along with the sale of the vehicle, the charges for etching identification numbers, paint protection, and rustproofing are considered part of the total consideration paid for the vehicle. That total consideration is subject to the motor vehicle usage tax that is paid to the local county clerk at the time of titling and/or registration.
Nothing in the new law changes the current motor vehicle usage tax valuation. See Kentucky Regulation 103 KAR 44:060 for more information on motor vehicle valuation.
If the etching of identification numbers, paint protection, and rustproofing occur after the sale of the vehicle as a stand-alone transaction, the charges are subject to the 6% sales tax, and the dealers should report the tax collected on their sales and use tax return (Form 51A102) for the tax period in which the sale occurs.
Manufacturer's Warranty (aka Original or Factory Warranty):The parts used in the repair of tangible personal property under a manufacturer's warranty are not taxable either upon purchase by the repairer or upon their use. Sales tax does not need to be charged for parts used to complete work performed under a manufacturer's warranty. The reason is that the value of those parts is included in the value of the warranty reflected in the original selling price. See Kentucky Regulation 103 KAR 26:060.
Before July 1, 2018, any separate purchase of an extended warranty by a customer is not subject to sales and use tax at the time of the sale. However, the seller or other party providing the extended warranty service must pay sales or use tax on the cost of tangible personal property used to complete the work under the extended warranty.Beginning July 1, 2018, the sale of extended warranties is subject to sales tax. With this change, the parts used in the repair of tangible personal property under an extended warranty are not taxable either upon purchase by the repairer or at the time of use. Because sales tax applies at the time the extended warranty is sold, the dealer may claim a resale exemption for parts purchased and installed to complete repairs under the extended warranty.
The 6% Kentucky sales tax on extended warranty services is charged on the initial sale of the extended warranty contract itself.