Sales and Use Tax Treatment of Extended Service Contracts and Warranties

The department has received questions about whether charges for extended service contracts and warranties are subject to Wisconsin sales and use tax. This Q & A clarifies the tax treatment of such charges.

Question: I am going to purchase some appliances for my home. I intend to purchase extended service contracts (warranties) for the appliances. Are my purchases of the extended service contracts subject to Wisconsin sales tax?

Answer: Your purchase of a service contract is subject to Wisconsin sales tax if your purchase of the property covered by the service contract is subject to Wisconsin sales tax. Similarly, if your purchase of the covered property is not subject to Wisconsin sales tax, your purchase of the service contract is also not subject to Wisconsin sales tax.

Example 1: You purchase a new freestanding refrigerator for your home. The seller's charges for the sale, delivery, and set-up of the refrigerator are subject to Wisconsin sales tax. Therefore, the seller's charge for the extended service contract for the refrigerator is also subject to Wisconsin sales tax.

Example 2: You purchase a built-in dishwasher that the seller will install. The sale and installation of the dishwasher are not subject to Wisconsin sales tax because the dishwasher is installed as a real property improvement. Therefore, the seller's charge for the extended service contract for that dishwasher is also not subject to Wisconsin sales tax. Note: The seller must pay Wisconsin sales or use tax on its purchase of the dishwasher, since the seller uses the dishwasher in making a real property improvement. If the seller purchases an extended service contract for the dishwasher, the seller must also pay Wisconsin sales or use tax on its purchase of the extended service contract.

Last updated September 1, 2010