Texas Rules that Equipment Dealer is a Marketplace Provider for Separate Warranty Sales

At a glance:

• The main takeaway: The application of state marketplace facilitator sales tax rules has expanded beyond sales made through Amazon and eBay, as illustrated by a recent Texas ruling.
• Assess the impact: Though each state will have varying definitions and requirements for being a marketplace provider/facilitator, the Texas ruling indicates the importance of understanding the specific compliance requirements applicable to your business.
• Take the next step: Aprio’s State and Local Tax (SALT) team can assist with determining if your business meets the definition of a marketplace facilitator and assessing sales tax compliance requirements in each applicable state.

Schedule a free consultation today to learn more!

The full story

All states that impose sales tax have rules that require “marketplace facilitators” to collect and remit sales tax on sales occurring through their marketplace. Essentially, these rules place the burden of sales tax compliance on those marketplace facilitators, even though they are not the actual seller of the product. Whether a business qualifies as a marketplace facilitator is dependent on each state’s rules, which are not uniform (no surprise there). While these rules may have initially been targeted at commonly recognized marketplaces, like Amazon, Walmart, Etsy, and eBay, the broad language in these provisions is capturing many different types of transactions.

Texas Company Seeks Clarity on Marketplace Provider Rules

A recent Texas private letter ruling illustrates the application of the state’s marketplace provider rules to an equipment dealer that also offers a manufacturer’s warranty program to its customers.[1]

The taxpayer requesting the ruling is a subsidiary and the financial products division of a manufacturer of construction and mining equipment, diesel-electric locomotives, gas engines, and turbines. The taxpayer offers a product called a customer value agreement (CVA) that is a warranty for new, used, and aftermarket purchases of the manufacturer’s equipment.

The dealer offers the CVA when it sells the equipment, listing the CVA as a separate line item on the equipment purchase invoice. Though the dealer accepts payment for the CVA, the CVA is a contractual agreement between the taxpayer and the equipment customers.  The dealers are required to perform the repairs covered by the CVA.[2]

The taxpayer requested a ruling as to whether the dealer is a marketplace provider for purposes of selling the CVAs.

Details of the Private Letter Ruling

First, the ruling concluded that the CVA qualifies as an “extended warranty or service policy,” which is subject to sales tax.[3]  An “extended warranty or service policy” is “a contract sold to the purchaser of tangible personal property for an amount in addition to the charge for the tangible personal property, or sold to an owner of tangible personal property, to extend the terms of the manufacturer’s written warranty or provide a warranty in addition to or in place of the manufacturer’s written warranty.”

Second, since the sale of the CVA is taxable, the ruling then proceeded to the taxpayer’s question of whether the dealer is a marketplace provider.

Under Texas sales tax law, the relevant terms and definitions are as follows:

• “Marketplace” – a physical or electronic medium through which persons other than the owner or operator of the medium make sales of taxable items. The term includes a store, Internet website, software application, or catalog.[4]
• “Marketplace provider” – a person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers.[5]
• “Marketplace seller” – a seller, other than the marketplace provider, who makes a sale of a taxable item through a marketplace.[6]

Conclusions for Texas Companies

Based on these definitions, the ruling concluded that the dealer is a marketplace provider because (i) the dealer operates a marketplace because its location where it sells CVAs is a physical medium and (ii) the dealer receives and processes payments from customers for the CVAs on behalf of the taxpayer. 

Therefore, as a marketplace provider, the dealer is responsible for collecting and remitting sales tax for sales of the CVAs, and it must certify to the taxpayer that it is responsible for doing so.[7] As such, the taxpayer should exclude sales of CVAs made through dealers that have certified they are collecting and remitting tax on the taxpayer’s behalf.[8] The taxpayer is required to collect and remit Texas tax on its sales of CVAs if a dealer has not certified that it will collect and remit on sales made at the dealer’s location and on sales that are not made through a marketplace.

The Bottom Line

Texas’s definition of a marketplace provider is on the broader end of the spectrum, as it requires only that a business operate a marketplace and that it directly or indirectly processes sales or payments for marketplace sellers. States have varying definitions and requirements for being a marketplace provider/facilitator, so it is important for a business to review each state’s rules in order to determine its sales tax collection and remittance obligations.

Aprio’s SALT team has experience with each state’s marketplace facilitator definitions and obligations for collection and remittance. We can assist your business with determining if it is a marketplace facilitator and assessing sales tax compliance requirements in each state. Our goal is to ensure that your business complies with its sales and use tax obligations and does not incur unexpected liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.  

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[1] Texas Private Letter Ruling No. PLR20221004155633 (Oct. 7, 2024).  It is worth noting that Texas uses the term “marketplace provider” instead of the more common “marketplace facilitator.”

[2] Although not mentioned in the guidance, presumably there is some agreement between the taxpayer and the Dealer with regard to each party’s rights and obligations with respect to repairs covered under a CVA.

[3] Tex. Admin. Code Rule § 3.292(d)(2)(A).

[4] Tex. Tax Code § 151.0242(a)(1).

[5] Tex. Tax Code § 151.0242(a)(2).

[6] Tex. Tax Code § 151.0242(a)(3).

[7] Tex. Tax Code § 151.0242(b), (c).

[8] Tex. Tax Code § 151.0242(d).