Automatic warranty
In short
A warranty included with the work for no extra charge. It is treated as part of the contract it came with, which decides how warranty-work materials are taxed.
In full
An automatic warranty is one a contractor includes with the work at no separate charge — a manufacturer's warranty or a warranty provision in the contract — intended to make the property whole in the case of defective workmanship. It is not optional and it is not separately sold.
The governing idea is that it is not a separate transaction. ADOR treats it as if it were part of the original project, and everything else follows from that.
On a Modification project it is part of the taxable gross receipts of that project. Because the warranty is part of the project, materials incorporated in performing warranty work may be purchased exempt, and no retail equivalent is due under business code 315.
On an MRRA project it is not taxable, for the same reason in reverse: the MRRA project was not taxable either. Materials used in performing that warranty work are taxable at the point of purchase, or if bought exempt, the retail equivalent is remitted under business code 315.
So the warranty never has a tax character of its own. It inherits one.
Warranty period services also appear on the other side of the classification question. A.R.S. § 42-5075(O)(1)(a) lists warranty period services among construction phase services, which are not within the design phase exclusion.
| Warranty | The charge | Materials used in warranty work |
|---|---|---|
| Automatic, on a Modification project | Taxable, within the project's gross receipts | Bought exempt; no retail equivalent under 315 |
| Automatic, on an MRRA project | Not taxable | Taxed at purchase, or retail equivalent under 315 |
| Extended or third-party, separately sold | Not taxable — A.R.S. § 42-5061(A)(3) | Always treated as MRRA: taxed at purchase, or 315 |
ADOR Contracting FAQs; A.R.S. § 42-5075(O)(1)(a)