North Carolina Sales Tax Changes Cause Confusion

When sales tax was extended to sugary beverages in Vermont last July, confusion abounded for both retailers and consumers. In response to uncertainty over whether or not beverages such as Schweppes Black Cherry Seltzer were exempt or taxable, some businesses applied tax to too many beverages; others took a “wait and see” approach and erred on the side of exempt. Consumers, noticing differences from store to store, were puzzled.

If the sales tax confusion has finally settled down in Vermont, it’s heating up in North Carolina where sales tax was extended to numerous installation, maintenance and repair services on March 1. According to the Winston-Salem Journal , “Even though there was a six-month lag time between passage and introduction [of the new budget and tax policies], the labor sales tax has left some consumers with sticker shock and companies still confused on what services are taxable.”

To err is human

As in Vermont, some retailers are erring on the side of caution when in doubt, and others are waiting for further clarification before making any changes. Their confusion is understandable. According to North Carolina Department of Revenue (DORNC) spokesman Trevor Johnson, “[I]t’s important to note that not all flooring and carpet installations are treated as retail sales. Some transactions continue to be treated as real property contracts, dependent on the classification of the person performing the work.”

You read that right: sales tax has been extended to installation, maintenance and repair services but is not uniformly applied to all installation, maintenance and repair services. Charges for towing services, for example, are exempt if the car is towed to the owner’s home but taxable if it’s towed to a repair shop.

Love me, love my car

State officials hope to secure a steady stream of revenue in extending sales and use tax to these services—everything breaks down or wears out eventually. According to Bobby Henneburg of Rattle + Hume Automotive in Winston-Salem, customers spend about $1,000 on car maintenance annually—about 60% on now taxable labor services. And that’s just one retailer in one industry; North Carolina sales and use tax now also applies to labor and services on shoe repair, tire recapping and retreading, and watch, clock and jewelry repairs.

Bigger may not be better, but it may make compliance easier                                          

In the months leading up to the change, the Vermont Department of Revenue worked to inform retailers about the new policy; in mid-September, it was still busy educating retailers, many of them small shops. To help taxpayers, DORNC hosts tax seminars and posts technical bulletins on its website.

Large businesses with sophisticated point of sale systems and armies of accountants have an easier time adapting to sales and use tax rate, rule and regulation changes like the ones in North Carolina and Vermont. Smaller businesses and those that handle sales and use tax manually find adapting to change much more challenging.

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