An extended warranty, also known as a service contract, is an agreement to cover certain repair costs for a product beyond the manufacturer’s warranty period. Extended warranties provide additional coverage once the original warranty expires and can be purchased for products like appliances, electronics, vehicles and more.
Extended warranties are offered by retailers, manufacturers, or third-party companies. They come with various coverage options and term lengths, typically ranging from 1-5 years after the original warranty expires. Extended warranties can cover parts, labor, or replacement costs if an item breaks down after the original warranty.
Are extended warranties taxable?
Whether extended warranties are taxable depends on individual state laws. Some states consider extended warranties to be taxable while others exempt them from sales tax.
States Where Extended Warranties are Taxable
Several states treat extended warranties as taxable including:
- California
- Florida
- Hawaii
- Mississippi
- New Mexico
- South Dakota
- Tennessee
- Texas
- Washington
In these states, sales tax is charged on the purchase of extended warranties for products and vehicles. The tax rate charged is based on state and local sales tax rates.
For example, if you purchase a $400 extended warranty for an appliance in Los Angeles, CA, you would owe around $33 in sales tax at the 8.75% statewide rate.
States Where Extended Warranties are Not Taxable
There are also many states that exempt extended warranties from sales and use tax:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
These states do not charge sales tax on extended warranties because they meet exempt definitions, such as being an intangible good or service contract.
Other states may exempt extended warranties only for certain products or uses. For instance, some states exempt auto extended warranties but still tax electronics and appliance extended warranties.
Extended Warranty Service Sales Tax by State
To provide more detail, here is an overview of sales tax policies on extended warranties in each U.S. state:
Alabama
Extended warranties are only taxable on tangible personal property per AL Revenue Rule TSD-420-27-14. For vehicles, extended warranties by a 3rd party are not taxable but those by the dealer are.
Alaska
Alaska does not have a statewide sales tax. However, some localities may tax extended warranties.
Arizona
Arizona taxes extended warranties for tangible personal property but not for vehicles per AZ Rev. Stat. § 42-5061.
Arkansas
Arkansas taxes extended warranties on tangible personal property but exempts warranties for motor vehicles per AR Code 26-52-401.
California
California taxes all extended warranties for products and vehicles. No exemptions apply per CA Tax Code 6010.65.
Colorado
Extended warranties are exempt from sales tax in Colorado per CO Rev. Stat. 39-26-709(1).
Connecticut
Connecticut taxes extended warranties on tangible goods like appliances and electronics. Auto extended warranties are exempt per CT Gen. Stat. § 12-407(2)(i)(I).
Delaware
Delaware does not tax extended warranties.
Florida
Florida taxes extended warranties for products and motor vehicles. No exemptions apply per FL Statutes 212.0596.
Georgia
Georgia taxes extended warranties on tangible personal property but exempts those for motor vehicles per GA Code 48-8-3(33).
Hawaii
Hawaii taxes all extended warranties for products and vehicles. No exemptions apply per HI Rev. Stat. 237- (1).
Idaho
Idaho taxes extended warranties on tangible personal property except for motor vehicles per ID Code 63-3622F.
Illinois
Illinois taxes extended warranties for tangible goods but exempts those for motor vehicles per 35 ILCS 105/3-5.5.
Indiana
Indiana does not tax extended warranties for products or vehicles per IN Code 6-2.5-5-6.
Iowa
Iowa taxes extended warranties on tangible property but exempts warranties on vehicles per IA Code 423.2(1)”b”.
Kansas
Kansas taxes extended warranties on tangible goods but not those for motor vehicles per KS Statute 79-3606(n).
Kentucky
Kentucky taxes extended warranties for tangible personal property but exempts warranties on motor vehicles per KY Rev. Stat. 139.010.
Louisiana
Louisiana does not tax extended warranties for products or vehicles per LA Rev. Stat. 47:301(14)(g)(i).
Maine
Maine taxes extended warranties on tangible personal property except those for motor vehicles per ME Rev. Stat. 1760(14-A).
Maryland
Maryland taxes extended warranties on tangible goods but exempts warranties on motor vehicles per the Annotated Code of MD Tax-Gen §11-201(b).
Massachusetts
Massachusetts taxes all extended warranties. No exemptions apply per MA Gen. L. ch. 64H, § 1.
Michigan
Michigan taxes extended warranties on tangible personal property except for motor vehicles per MCL 205.51(1)(b).
Minnesota
Minnesota taxes extended warranties on tangible personal property but exempts those for motor vehicles per MN Stat. 297A.61.
Missouri
Missouri taxes extended warranties on tangible personal property except those for motor vehicles per MO Rev. Stat. 144.020.1(6).
Montana
Montana does not have a statewide sales tax. However, some localities may tax extended warranties.
Nebraska
Nebraska taxes extended warranties on tangible personal property except those for motor vehicles per NE Rev. Stat. 77-2704.09(1).
Nevada
Nevada taxes extended warranties on tangible goods but exempts warranties on vehicles per NV Rev. Stat. 372.284.
New Hampshire
New Hampshire does not have a sales tax.
New Jersey
New Jersey taxes extended warranties on tangible goods but not those on motor vehicles per NJ Rev. Stat. 54:32B-2(cc)(1).
New Mexico
New Mexico taxes all extended warranties. No exemptions apply per NM Stat. 7-9-61.
New York
New York taxes extended warranties on tangible personal property but exempts those for motor vehicles per NY Tax Law 1115(a)(39).
North Carolina
North Carolina taxes extended warranties on tangible personal property except those for motor vehicles per NC Gen. Stat. 105-164.13(61a).
North Dakota
North Dakota taxes extended warranties on tangible goods but exempts those for motor vehicles per ND Cent. Code 57-39.2-04(9).
Ohio
Ohio taxes extended warranties on tangible personal property except for motor vehicles per OH Rev. Code 5739.01(EEE).
Oklahoma
Oklahoma taxes extended warranties on tangible personal property but exempts warranties on motor vehicles per 68 OK Stat. 1356(14).
Oregon
Oregon does not have a sales tax.
Pennsylvania
Pennsylvania taxes extended warranties on tangible goods but exempts warranties on motor vehicles per 61 PA Cons. Stat. § 31.3.
Rhode Island
Rhode Island taxes extended warranties on tangible personal property but exempts motor vehicle warranties per RI Gen. Laws 44-18-7.1(3)(ii).
South Carolina
South Carolina taxes extended warranties on tangible personal property but exempts those for motor vehicles per SC Code 12-36-910(C).
South Dakota
South Dakota taxes all extended warranties. No exemptions apply per SD Codified Laws 10-45-6.1.
Tennessee
Tennessee taxes all extended warranties. No exemptions apply per Tenn. Code 67-6-102(34)(A).
Texas
Texas taxes all extended warranties. No exemptions apply per TX Tax Code 151.058.
Utah
Utah taxes extended warranties on tangible personal property but exempts warranties for motor vehicles per UT Code 59-12-104.
Vermont
Vermont does not tax extended warranties per 32 VSA 9741(14).
Virginia
Virginia taxes extended warranties on tangible personal property but exempts warranties on motor vehicles per VA Code 58.1-609.5.
Washington
Washington taxes all extended warranties. No exemptions apply per WA Rev. Code 82.08.050.
West Virginia
West Virginia taxes extended warranties on tangible personal property except those for motor vehicles per WV Code §11-15-9(a)(3).
Wisconsin
Wisconsin taxes extended warranties on tangible goods but exempts warranties on motor vehicles per WI Stat. 77.54(8).
Wyoming
Wyoming taxes extended warranties on tangible personal property but exempts those for motor vehicles per WY Stat. 39-15-105(a)(viii)(N).
Are extended auto warranties tax deductible?
If you itemize your taxes, extended auto warranties may be partially deductible on your federal taxes as a miscellaneous itemized deduction. However, due to recent tax law changes, miscellaneous deductions are no longer allowed through 2025.
You may be able to deduct any sales tax paid on the auto extended warranty purchase when you file your taxes. This can be claimed as a deduction along with state and local general sales taxes.
For 2022 taxes, you can choose to deduct either state and local income taxes paid or state and local sales taxes paid. You would need documentation showing the sales tax paid on the auto extended warranty.
Do extended warranties add value when selling a used car?
Extended warranties can add value when selling a used vehicle in some cases. However, their impact depends on various factors:
- Remaining Coverage: Warranties with longer terms remaining tend to add more value than those expiring soon. Most buyers want at least 2 years of coverage.
- Warranty Provider Reputation: Manufacturer and premium extended warranties from reputable providers have higher perceived value vs. no-name companies.
- Vehicle Reliability: On very reliable models, extended warranties add less value compared to brands with higher repair costs.
- Vehicle Age/Mileage: On older, high mileage vehicles extended coverage is more useful to buyers, adding more resale value.
- Warranty Transferability: If the extended warranty can transfer to a new owner it holds much higher value than non-transferable ones.
Overall, the best value is typically seen from extended warranties with comprehensive coverage, reputable providers, and at least 2 years remaining that can transfer to the new owner.
Should you get an extended warranty on a used car?
Getting an extended warranty on a used vehicle can provide valuable protection but has tradeoffs to consider:
Potential benefits
- Covers repair costs after factory warranty expires
- Provides peace of mind against unexpected breakdowns
- May cover components like electronics that have higher failure rates
- Allows keeping older vehicles longer without high repair bills
Potential drawbacks
- Adds an extra upfront cost
- May overlap or have similar coverage
Key factors to consider
- Vehicle age and mileage – older and higher mileage used cars benefit more from extended warranties
- Reliability record – consider repair history of that model and whether prone to expensive issues
- Original warranty remaining – if still has 1+ year factory warranty, extended may overlap
- Deductible amount – lower deductibles mean less out of pocket per repair
- Included services – roadside assistance, rental car reimbursement, etc add value
- Provider reputation – coverage from the manufacturer or reputable providers is preferable
Carefully weighing these factors for your specific vehicle can determine if an extended warranty is worthwhile protection or not. Getting quotes to compare pricing from different providers is also recommended.
Do warranties cover wear and tear?
Standard extended warranties do not cover repairs due to normal wear and tear. Only defects in materials and workmanship are covered. Examples of wear and tear not covered:
- Brake pads wearing down
- Tires becoming bald
- Oil changes and fluid flushes
- New batteries/wiper blades
However, some extended auto warranties offer an optional maintenance plan that covers certain wear items. This may include coverage for brakes, batteries, bulbs, belts, hoses, and more.
Maintenance add-ons provide scheduled coverage but usually only up to a set limit. For example, brake pads may be covered for the first 3 replacements then wear out of pocket afterwards. So while useful, wear and tear is still only partially covered even with the maintenance option.
Do warranties cover pre-existing conditions?
No, extended warranties will not cover repairs for pre-existing conditions, only issues that arise after the contract start date.
When you purchase an extended warranty, the product or vehicle is inspected to note any existing defects. Anything identified as worn or not working properly would be excluded from coverage.
This prevents consumers buying extended warranties only when they know a repair is needed. So it’s important to fix any outstanding issues beforehand and avoid waiting until right before the factory warranty expires.
Some providers may offer conditional policies if you repair existing defects first. But in general, extended warranties only apply to new issues that occur under coverage, not pre-existing conditions.
What voids an extended warranty?
There are certain actions that can void your extended warranty and lead to claim denials if repairs are needed later. Common warranty-voiding situations include:
- Missing scheduled maintenance and services
- Vehicle modifications like lift kits or engine tuning
- Improper fluid levels leading to damage
- Using non-approved parts for maintenance and repairs
- Tampering with the odometer or vehicle diagnostics
- Damage from environmental causes like floods or fires
- Commercial use of the vehicle if not expressly permitted
Modifying a vehicle without the warranty company’s consent or failing to properly maintain it are the most common reasons extended auto warranties are voided.
Carefully following the maintenance schedule and terms of service in the contract is key to keeping your warranty valid. Also disclose any modifications you make to the provider.
Can you transfer an extended car warranty to a new owner?
Whether an extended auto warranty is transferable to a new owner depends on the specific policy:
- Manufacturer warranties – These are fully transferable to subsequent owners, enhancing resale value.
- Dealer warranties – Most are not transferable and expire when selling the vehicle.
- Third-party warranties – Some providers allow one-time transfers for a fee while others are non-transferable.
Before purchasing an extended warranty, clarify the transferability policy if you may sell the vehicle during the contract term. Transferable warranties maintain value but can cost more upfront.
If selling a vehicle, highlight any remaining transferable warranty coverage to help improve the resale amount. Non-transferable warranties lose value after the original buyer.
Do warranties cover accidents?
Damage from accidents is not covered under standard extended warranties. Only “mechanical breakdowns” from normal use are included, not collisions or other physical impacts.
However, supplemental “exclusionary” warranties that specifically cover accidents are available. With this enhanced coverage, components damaged in an accident like the engine, transmission, electronics, etc may be repaired or replaced under the warranty depending on policy limits.
Accident coverage warranties cost more than standard ones due to the increased risk. They may have mileage and age limits, deductibles, and lower payout caps. But can be worthwhile for expensive vehicles given today’s high repair costs.
Can a warranty be added to a used car?
Yes, extended warranties can be purchased for used vehicles even after buying from the dealer. Costs vary based on factors like:
- Vehicle age, mileage, and model
- Length of coverage term
- Scope of inclusions (powertrain, bumper-to-bumper, etc)
- Deductible amount
Newer used vehicles usually have more warranty options available. Adding an extended warranty is best done while still within the factory coverage period if buying a used car. This prevents any gaps in coverage.
Third-party extended warranty companies generally offer broad eligibility criteria for used vehicles. But very old or high mileage vehicles may only qualify for powertrain coverage.
Do I need an extended warranty on a certified pre-owned vehicle?
Whether to get an extended warranty with a certified pre-owned (CPO) vehicle depends on several factors:
Pros of Extended Warranty
- Lengthens coverage beyond CPO warranty term
- CPO warranties have limitations – added coverage
- Lower repair deductibles than CPO warranties
Cons of Extended Warranty
- Adds cost on top of often higher CPO prices
- CPO warranty already provides peace of mind
- Vehicle was rigorously inspected to qualify as CPO
Important considerations are the length of the CPO warranty (often 1-2 years), your planned ownership timeframe, repair cost risk tolerance, and the vehicle model’s reliability history.
A new extended warranty can provide valuable additional protection on top of a CPO warranty. But the existing CPO coverage also reduces the need for extended protection too.
What are common exclusions on extended warranties?
While extended warranties cover most mechanical defects, there are components and services often excluded from coverage:
- Normal wear and tear
- Body panels/glass
- Trim pieces, moldings, upholstery
- Regular maintenance like fluid changes
- Tires and wheels
- Certain accessorie
- Damage from environmental causes
- Audio/video equipment
- Normal adjustments and alignments
Also note that “bumper to bumper” warranties have far fewer exclusions than powertrain policies, which only cover the engine, transmission, etc.
Reviewing the contract’s fine print is key to understanding exactly what is and isn’t included before purchasing an extended warranty. Pay particular attention to the exclusions section.
Are extended warranties refundable?
Refund rules depend on the extended warranty provider and individual state laws:
- Cancel during free look period – Most contracts allow canceling for full refund within 10-30 days.
- Pro-rated refund – After the initial period, many let you cancel for a partial refund based on the unused portion of coverage.
- Non-refundable – Some providers consider extended warranties non-refundable after the initial free look window.
- State laws – Certain states require pro-rated refunds on canceled auto extended warranties.
To get a refund, the process typically involves contacting the warranty company, submitting cancellation forms, and returning the original contract. Refund processing time varies.
If planning to sell a vehicle, it’s often better to keep the transferable warranty and have it add resale value. But for a vehicle you keep, canceling an unused warranty for a partial refund can be an option.
Are extended car warranties worth it?
Whether an extended warranty is “worth it” depends on:
Factors Supporting Extended Warranties
- Older or high mileage cars benefit more
- Provides peace of mind against surprise repairs
- May be required for auto financing
- Convenient service at dealers nationwide
- Coverage for electronics repairs can be useful
- Warranty transfers can help used car resale value
Factors Against Extended Warranties
- Adds to new/used car price
- Interest and fees increase total cost
- Repair deductibles and limitations
- Cancellation can be difficult
- Reliable models likely won’t need repairs
On balance, they can provide solid protection against expensive repairs, especially for less reliable models prone to issues. But lower-risk vehicles likely benefit less. Thoroughly researching the contract terms and costs is key to getting worthwhile extended coverage.
Frequently Asked Questions about Extended Warranties
Do dealerships offer the best extended warranties?
Not necessarily. Dealerships typically don’t underwrite their own warranties but rather work with third-party providers. Extended warranties directly from third-party companies can sometimes have better coverage, lower prices, or extra perks.
Can you use a warranty for repairs anywhere or just the selling dealer?
Most extended warranties allow using any licensed repair facility. However, going to the original selling dealer can provide a smoother claims process in some cases.
Do credit cards provide extended warranty protection?
Some credit cards extend the manufacturer’s warranty by a year or so if you pay for the full item cost with that card. This benefit acts similar to purchasing an extended warranty.
How are high-tech features covered on newer cars?
Standard extended warranties generally exclude normal wear to items like batteries in hybrid/electric vehicles. Upgrading to a wrap or exclusionary policy can provide more comprehensive tech component coverage.
Conclusion
Extended warranties provide valuable protection for many consumers given rising vehicle repair costs. While not always necessary, they give peace of mind against expensive failures, especially for older and less reliable vehicles. Carefully weighing factors like repair history, mileage, deductibles, and contract terms allows making an informed decision on purchasing extended coverage for your specific vehicle.
Thoroughly understanding state taxes on extended warranties also ensures paying the proper sales tax amount based on your state’s laws. Be sure to clarify transferability if you may resell the vehicle while the warranty is active. Compare pricing from multiple providers and dealers to potentially find a worthwhile extended warranty that fits both your coverage needs and budget.
