When collecting tax on extended service contracts, how is the fee divided?

The fee for tax on extended service contracts is typically divided on one half of the retail cost. This means that when calculating the sales tax for these contracts, the tax is applied as though only half of the total retail price of the extended service contract is subject to tax. This approach provides a standardized way to determine the tax liability while ensuring that customers are not overcharged based on the full retail value of the service.

In practice, this means that if a contract with a total retail value of $1,000 is sold, the taxable amount for the service contract may be considered as $500. This methodology is often regulated by state laws to ensure fair practices in the sale of extended service contracts and their associated taxes. It’s important for salespersons to understand these regulations to properly calculate and communicate tax obligations to customers.