The sale of a warranty or service contract covering the repair or maintenance of tangible personal property is subject to sales tax at the time of the sale of the contract. Any subsequent repairs performed that are covered by the warranty or maintenance contract are not subject to tax. However, if the repair is not covered by the warranty or maintenance contract, the seller must collect sales tax on the repair. Additionally, the seller must collect sales tax on any minimum fee or deductible charged the purchaser that is not covered by the warranty or maintenance contract. The total sales price of warranty or service contracts is subject to the 7% state rate plus the local tax rate.
Reference: Tenn. Code Ann. § 67-6-208. Tenn. Comp. R. & Regs. 1320-05-01-.04. Important Notice 15-11.