North Carolina ruled that an office equipment supplier did not owe tax on the cost of materials used in fulfilling maintenance agreements.

Systel Business Equipment Company, Inc. was collecting and remitting sales taxes on revenue made from selling optional maintenance agreements to clients who owned their own machinery or leased it from a third party. When service was required, Systel provided the repair service without self assessing use tax on the materials it used for the repair. The Secretary of Revenue of North Carolina argued that the initial sale of an optional maintenance contract was not a retail sale and that tax should be remitted on the property used to make the repairs. However, the North Carolina Tax Review Board found that the sale of the maintenance contract was a retail sale and use tax did not need to be remitted on the cost of the property used in making the repairs. (North Carolina Tax Review Board, No. 429, March 9, 2004.)

Posted on August 5, 2004