ALABAMA DEPARTMENT OF REVENUE
SALES, USE & BUSINESS TAX DIVISION
SALES & USE TAX RULE
810-6-1-.186.05. Warranty, Extended or Service Contract.
(1) When a dealer sells an extended warranty or service contract to
a customer, no sales tax is due.
(2) Except as noted in (3) below, sales or use tax is due on the purchase
of, or withdrawal from inventory of, parts used in performing repairs or
services pursuant to an extended warranty or service contract. Tax is to
be computed on the cost of the parts to the dealer.
(3) Sales or use tax is not due on the purchase of, or withdrawal from
inventory of, parts by dealers to be used in performing repairs or services
free-of-charge for a customer under the terms of a manufacturer's extended
warranty or service contract sold to the customer by the dealer. Such warranties
are granted to the customer by the manufacturer, the manufacturer warrants
or guarantees the replacement of defective parts at no cost to the customer,
and the manufacturer provides full credit to the dealer performing the
repair for the parts purchased or withdrawn. Department of Revenue v.
Equipment Sales Corporation (Docket No. S. 92-286) (Sections 40-23-4(a)(18)
and 40-23- 62(19)) (Adopted June 12, 1978, readopted through APA effective
October 1, 1982, amended October 4, 1994)
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