GENERAL MOTORS GOODWILL POST-WARRANTY REPAIRS NOT SUBJECT TO FLORIDA USE TAX
UPDATE: December 5, 2012 - 1ST DCA ISSUES OPINON UPHOLDING TRIAL COURT'S OPINION THAT NO SALES TAX IS DUE ON POST WARRANTY GOODWILL REPAIRS. A copy of the full opinion is available for download at the end of this article, but the specific holding was:
[W]e conclude that the right to participate in the Case-By-Case Program and to receive repairs performed pursuant to it was part of the consideration GM's customers received in exchange for the purchase price of their GM Vehicles. Accordingly, the trial court did not err in concluding that the tax due for such repairs was paid as part of the original sales transaction, and that to impose a second round of tax on the transaction would amount to double taxation or pyramidding of tax prohibited under Florida Law.
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Original Article:
On January 18, 2012, Circuit Court Judge Terry P Lewis granted General Motors' summary judgement motion against the Florida Department of Revenue in three consolidated cases[i] regarding whether Florida Use Tax is due on "goodwill" warranty repairs. At the heart of the matter is whether the cost to make repairs to a customer's vehicle at no charge after the customer's vehicle warranty expired would be considered a separate taxable event distinct from the previously taxed sales of the vehicle warranty under Florida's sales and use tax law. At first blush, one might expect that car dealers would be reluctant to make such repairs very often and the tax at issue to General Motors would be minimal. However, after reading this case, maybe all of us should be requesting a lot more free repairs from our car dealers. The case reveals that during the relevant period, General Motors ("GM") provided more than 400,000 repairs at a cost of more than $300,000,000.[ii] One can easily see that the amount of tax at issue is more than substantial enough to be worth litigating.
Section 212.0506, Florida Statutes ("F.S."), provides that the sale of warranty services is subject to Florida's sales tax at a rate of six percent. Subsection (10) of § 212.0506, F.S., provides "[m]aterials and supplies used in the performance of a factory or manufacturer's warranty are exempt [from use tax] if the contract is furnished at no extra charge with the equipment guaranteed thereunder and such materials and supplies are paid for by the factory or manufacturer." The Florida Department of Revenue argues that the General Motors should be liable for Florida use tax on parts provided to customers at no charge after the warranty period expires. The Plaintiff reasons that the warranty is subject to sales tax at the time the car is purchased. The Plaintiff goes on to persuasively argue that the post-warranty repairs are really part of the warranty provided to the customers at the point of original sale. Therefore, any parts provided during both the warranty and goodwill post-warranty periods have already been subject to sales tax. Of interesting significance to the author of this article is the fact that the Florida Department of Revenue attempts to impose the tax on the parent company, General Motors, LLC, instead of the individual dealership that actually made the repairs.
In an opinion that reveals the judge's original reluctance to side with the Plaintiff, the result seems to turn on a combination of (1) the language in the customers warranty contract, (2) the level to which GM formalized its "Goodwill Repairs Program," (3) the potential for liability to GM for not making such post-warranty repairs, and (4) cases that similarly decided this issue in both Michigan and Ohio. For your convenience, copy of the six page final summary judgement is provided below. However, I caution readers not to change their business practices just yet. The tax refund pending to General Motors is more than large enough that this case has about as much of a chance of not being appealed as we are to see the GOP presidential front runners cease the mudslinging campaign before the primaries come to a close.
AUTHORITY
§ 212.0506, Florida Statutes (Sales Tax Imposed on Warranty Service Contracts)
COURT DOCUMENTS
General Motors, LLC v. Florida Department of Revenue, Case Nos. 2004-CA-002739, 2007-CA-001680, 2011-CA-000807, (Fla. 2d Cir., Jan. 13, 2012).
Department of Revenue v. General Motors, LLC, Case No. 1D12-784, (Fla 1st DCa, Dec. 5, 2012)(not final until time expires to file motion for rehearing and disposition thereof if filed)
OTHER RELEVANT CASES/ARTICLES
General Motors Corp. v. Department of Treasury, 644 N.W. 2d 734 (Mich. 2002)
DaimlerChrysler Corp. v. Levin, 881 N.E.2d 840 (Ohio 2008).
Ford Motor Co. v. Florida Department of Revenue, Case No. 2011-CA-2411 (Fla. 2d Cir., 2011)(original complaint for ongoing case).
About the author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton is in charge of the Tampa office for the firm and his primary practice is Florida tax controversy. Mr. Sutton worked for the State and Local Tax department of a Big Five accounting firm for a number of years and has been an adjunct professor of law at Stetson University College of Law since 2002 teaching State and Local Tax, Accounting for Lawyers, and Federal Income Tax I. You can read more about Mr. Sutton in his firm bio.
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