North Carolina may tax even more services

North Carolina sales and use tax was extended to numerous labor, installation and repair service charges beginning March 1, 2016. Now legislators are considering expanding them further.

The new sales tax policy has caused a great deal of confusion because tax does not uniformly apply to all installation, maintenance and repair services: the same service may be exempt in one circumstance but taxable in another. For example, charges for a plumber to unclog a toilet are exempt if the plumber only sells repair and maintenance services (not materials or supplies). However, that same service is taxable if provided by a business that also sells materials. In spite of the North Carolina Department of Revenue’s efforts to clarify the policy, it remains confusing for both service providers and customers.

A budget provision currently under consideration in the Senate seeks to simplify the law by expanding sales and use tax to all repair, maintenance and service charges, no matter the type of business that provides it. Many other services, including janitorial and landscaping services, would remain exempt.

The Senate is also considering a sales and use tax exemption for aircraft and boat repair services costing more than $25,000 (the first $25,000 would be subject to tax). Proponents argue such an exemption would encourage growth in that industry. Opponents say it would be a tax break for the wealthy. Both agree it would cost the state approximately $1 million in sales tax revenue annually.

If enacted, the Senate provision could eventually generate close to $80 million annually (the House version of the budget does not include this provision). A vote is expected later this week (The News Observer).

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