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The previous 2002 version of the Information Bulletin did not require the vendor to collect sales tax on the sale of the extended warranties and maintenance agreements; however the vendor was required to self-assess use tax on any parts supplied pursuant to the terms of the warranty or agreement. The subsequent version of the Information Bulletin (2006) essentially reversed that requirement. The vendor was required to collect sales tax on the sale of the warranty but was not required to self-assess use tax on any parts supplied pursuant to the terms of the warranty.
...
[P]rior to the
issuance of the Information Bulletin 2 (December 2006), the Department issued
Letter of Findings 04-20050438 (August 11, 2006), 20061101 Ind. Reg.
045060474NRA, in which the Department addressed the question of whether
"Software Maintenance Agreements" were subject to sales tax. The
Department found that these agreements were subject to sales tax on a
"prospective basis" as follows:
Computer technology and use has evolved since the issuance of the first Sales Tax Information Bulletin [] 2 on May 2, 1983. Almost all software optional warranties and software maintenance agreements sold today include the automatic provision of updates-sometimes on a day-by-day or week-by-week basis. Purchasers of these agreements have a reasonable expectation that they will receive the updates whether or not the actual contract couches the provision of updates as "optional." The substance of the agreements is that tangible personal property in the form of software updates will be provided no matter what the language of the contract says. The department determines tax consequences by construing the substance of the agreement over the form. Wholesalers, Inc. v. Indiana Department of State Revenue, 597 N.E.2d 1339 (Ind. Tax 1992). In the case of software maintenance agreements or optional warranties, it is clear that the parties presume that tangible personal property in the form of updates will be transferred. Therefore, the department will construe software maintenance agreements and optional agreements as presumed to be subject to the sales and use tax. A taxpayer could rebut this presumption by demonstrating that no updates were actually received pursuant to a particular maintenance agreement or optional warranty.
Taxpayer [also] makes the general assertion that certain of its
purchases that are used in its "kitting" activities are not subject
to use tax because the purchases would qualify for the manufacturing equipment
exemption under IC § 6-2.5-5-3. ... "Kitting"
includes, but is not limited to, programming and installation of a SIM card,
installation of a battery, assembling the applicable instruction manual, phone
charger, related software and any other accessories or materials into a final
package for delivery to the customer. As such, Taxpayer routinely purchases
various pieces of equipment and warehouse supplies that are utilized or
consumed throughout the course of the production process.
...
Taxpayer is
a retailer and/or service provider. Taxpayer obtains large quantities of
packaged goods–i.e., cell phone, cell phone accessories, and instruction manuals–that
are produced by someone else, repackages the goods for sales to consumers, and
ships them to other retailers/businesses or directly to the consumer. The cell
phones, cell phone accessories, and instruction manuals that have been packaged
by Taxpayer have not undergone a "substantial change" in "form,
composition, or character" and are not substantially different than the
cell phones, cell phone accessories, and instruction manuals that Taxpayer
obtains from the manufactures. Thus, Taxpayer's "kitting" activities
constitute the performance of a service where Taxpayer repackages goods that
are manufactured by others.
