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Last Updated: 2/23/2017

Warranties and Service Contracts

Manufacturer’s warranty or recall

Repair or replacement parts are not taxable when they are covered by a manufacturer’s warranty or recall.

Optional maintenance contracts

Optional maintenance contracts provide prepaid coverage for scheduled oil changes, tire rotation, etc. Optional maintenance contracts are taxable if they include any taxable items, unless the cost of those items is insignificant. The sales tax is due when the contract is sold, not when the maintenance is performed.

Used car warranty

Used car dealers in Minnesota must provide a warranty with the sale of certain used cars. If you sell such a vehicle and later make repairs under the warranty, no tax applies to the parts used in the repair.

Rebuilt parts

Repair or replacement parts covered by a warranty or guarantee are not taxable when included in the purchase price of a rebuilt engine, transmission, etc.

Extended warranty contracts

Extended warranties to cover unexpected repair costs are not taxable. However, sales or use tax does apply to the parts used for contracted repairs. See the table below for details about when tax is due and who pays it.

If the warranty states

Then you must

No cost to customer for parts

Pay sales or use tax on your cost of the parts

Customer is responsible for a percentage of parts and labor

Charge the customer sales tax on the amount for parts only

Customer pays a deductible for parts or labor

Pay sales or use tax on your cost of the parts (the deductible payment is not taxable)

< Miscellaneous Sales Purchases and Use Tax >
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