Sales tax changes taxing for consumers, contractors

— An effort revamp North Carolina’s sales tax system to include many services and not just product purchases has created a patchwork of rules and exceptions that is already causing confusion among homeowners and contractors.

The Repair, Maintenance and Installation Service Tax for Real Property went into effect Jan. 1, meaning that contractors must collect an extra 6.75 to 7.5 percent for sales tax, depending on location, for labor costs on repairs to a home, from siding and roof fixes to plumbing and electrical work.

As with most things, however, the devil is in the details:

The state Department of Revenue has issued an even longer list of what qualifies as a repair and is subject to a new service tax, as well as rules regarding real property contracts for services and capital improvements.

“Anytime you deal with tax law it can be confusing,” said Andy Ellen, president of the North Carolina Retail Merchants Association. “I think the General Assembly was trying to simplify it.”

State lawmakers wrote the law so major remodeling projects that require a building permit are omitted from the service tax.

“If you capitalize an item as a business may do and you capitalize it for income tax purposes, it’s exempt as a capital improvement,” Ellen said. “They were trying to make sure that any changes they made did not disincentivize capital investment so that people would continue to do store remodels and build new homes and do those things that create new jobs and grow the economy.”

The Revenue Department has been working to educate contractors, who’ve never had to register with the state and charge sales tax for labor.

A special thank you to our friends at WRAL for helping out with this post.

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