Warranties, Recalls, and Service Contracts

Taxable and nontaxable items and services vary when dealing with warranties, recalls, 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 maintaining a vehicle. These contracts include taxable items and nontaxable repair labor for one price.

Examples include:

• Oil changes
• Tire rotation
• Wheel balancing 

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.

If an optional maintenance contract is sold with a motor vehicle, then the contract is taxed at the 6.875% general sales tax rate and applicable local taxes.

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.