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When repairs are performed by a repair shop under our contract, when are these repairs taxable?

Full Question: When repairs are performed by a repair shop under our contract, when are these repairs taxable?

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Answer:

Diane Yetter photoThe taxability of repair services varies by state, the type of equipment being repaired and the nature of the customer. If the equipment is brought into your repair shop by the customer and it is repaired on site and then removed by the customer, then the taxability will be based on the location of the repair. Some states will tax the entire charge, some states only the parts and others none of the charge but you might owe use tax on the parts used. This varies by state and would need to be researched on a state by state basis. If the equipment is shipped to your repair shop, you repair it and then ship it back to the customer in another state, then in most cases, the customer state will determine the taxability. There are some states that might tax the labor where it is performed. If the work is done under an extended warranty rather than just a time and material repair, then you have to look at how the state taxed the sale of the extended warranty. If the state taxed the sale of the warranty contract, then the repairs are usually not taxed as the contract was taxed. If the extended warranty was not taxed when sold, then the service provider usually owes use tax on the cost of parts incorporated into the repair. If you need assistance evaluating this on a state by state basis we are available to provide consulting services. If you are interested, please feel free to contact us.

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