Ky.gov

Extended Warranties:

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.


Extended Warranty:

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 a taxable extended warranty sold on or after July 1, 2018 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 an extended warranty for which sales tax was collected at the time of purchase.

​The 6% Kentucky sales tax on extended warranty services is charged on the initial sale of the extended warranty contract itself.

If sales tax was not paid to the other state on the extended warranty contract purchase, the repairs should be treated like a warranty contract sold prior to July 1, 2018. Sales and use tax is owed on the cost of parts related to any repairs done in Kentucky, but no sales tax is owed on the installation labor.

If sales tax was paid on the extended warranty contract in the other state, then treat the repair the same as if the extended warranty were sold and taxed in Kentucky. In this case, no sales tax is due on the parts or on the installation labor. 

​The customer may receive a refund on a pro-rated amount of the sales tax.  The dealer should claim a returned merchandise deduction on the sales tax form as an offset to the current month's receipts. Please note that the deduction totals cannot exceed total taxable receipts for any return period.

​Dealers should report these receipts on line 1 along with all other gross receipts.

​Dealers must break out the charges and show the sales price for the extended warranty contract and the applicable sales tax separately for the customer.

Dealers must itemize the sales tax separately on the invoice given to the buyer.

​No. For extended warranties sold before July 1, 2018, sales tax is due only on the cost of the parts used to make the repairs, not on the installation labor. 

​No. Because sales tax applies to the extended warranty contract at the point of sale, there is no retail sale to the customer when dealers perform repairs under the extended warranty contract. Handle these repairs in the same fashion as you would handle repairs under a manufacturer's warranty.

​Yes, sales tax is due on the deductible portion billed to the customer for repairs.

Dealers should not apply the 6% Kentucky sales tax on their sale of extended warranty contracts with the motor vehicles they sell unless the motor vehicle sold is also subject to Kentucky motor vehicle usage tax or Kentucky sales tax.    

Out-of-state customers that live in states that allow Kentucky residents to purchase and remove motor vehicles from that state within a specific period for subsequent registration, taxation, and use in Kentucky without payment of that state's vehicle tax receive the same treatment when purchasing a vehicle in Kentucky.  If the Kentucky dealer's sale of the motor vehicle to a non-resident is not taxable in this state, then the associated extended warrantly sold with that vehicle is not subject to sales tax either. 

​There are eight states which do not provide this reciprocal treatment for Kentucky residents (Arizona, California, Florida, Indiana, Massachusetts, Michigan, South Carolina, and Washington).  Therefore, customers from these states must pay the 6% Kentucky sales tax when purchasing their motor vehicles in Kentucky from in-state dealerships. Since sales of these vehicles are subject to Kentucky sales tax, any associated sale of an extended warranty for these vehicles is also subject to the 6% Kentucky sales tax.

​Such warranties are part of the total consideration subject to the motor vehicle usage tax and treated like an original manufacturer's warranty.

Sales and Excise Taxes