What portion of the retail cost of the service contract must the dealer collect retail sales tax for extended service contracts?

The correct answer indicates that a dealer must collect retail sales tax for extended service contracts on half of the retail cost of the service contract. This means that when a dealer sells an extended service contract, they are required by Virginia law to apply the sales tax to 50% of the total price of that contract.

This policy exists as a means to ensure that taxes are fairly applied to services that are provided under these agreements, without requiring the dealer to collect tax on the entire amount, which may not reflect the tangible personal property that is being taxed. The approach strikes a balance between compliance with tax regulations and fairness to customers.

It's important for dealers to be familiar with this requirement because it ensures compliance with the Virginia Department of Taxation laws, helps avoid potential penalties, and fosters transparency in transactions with customers regarding taxes. Understanding this tax application can also help dealers accurately calculate the total cost for customers, thereby enhancing customer service and trust.