2014 North Carolina Sales Tax Changes
The new year has brought with it significant sales and use tax changes in North Carolina. Last summer Governor Pat McCrory signed into law a comprehensive tax reform package that was passed by the North Carolina General Assembly. The reforms lowered the state income tax while also subjecting a wide variety of goods and services to the state sales tax. Some of the items that became subject to the sales tax on January 1st of this year include certain service contracts, admission charges to selected entertainment activities and newspapers. Most of the sales tax changes went into effect January 1, 2014 with some additional changes slated to take effect on July 1, 2014. Service Contracts: On December 23, 2013, the North Carolina Department of Revenue published Directive SD-13-5, Service Contracts, which clarifies how service contracts are going to be treated under the new law. Service contracts are defined by state law as “a warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property”. Repair contracts and maintenance agreements for real property remain exempt from sales tax. For example, if you purchase a repair contract for a laptop computer from a repair shop the entire cost of that contract is subject to state sales tax and any applicable local sales tax rates. However, if you purchase a maintenance agreement for an HVAC system that agreement is not subject to state or local sales tax because the HVAC system is attached to real property at the time of the sale of the agreement and therefore is not tangible personal property. An exemption is provided for service contracts for tangible personal property that is provided for an exempt item under Article 5 of Chapter 105. For example, service contracts for exempt custom software are exempt, while service contracts for taxable pre-written software are taxable. To keep things interesting, there is an exception to this exemption; service contracts for exempt automobiles are taxable. Additional Sales Tax Changes: A wide variety of other goods became taxable on January 1st. Tickets to the following entertainment activities will come with a new sales tax charge:
- Museums
- Cultural Sites
- Gardens
- Exhibits
- Shows
- A similar attraction or a guided tour of any of the above attractions
As if things weren’t bad enough for print media, the exemption for certain newspaper sales was repealed. Sales by street vendors and newspaper carriers making door-to-door deliveries became taxable, and sales made through coin-operated vending machines became subject to tax on 50% of the sales price. Other categories of goods that were subjected to state and local sales tax on January 1st include manufactured homes, modular homes, food served at institutions of higher education and nutritional supplements sold by chiropractic physicians. More Changes Coming in July: Several portions of the North Carolina sales tax reform legislation are not scheduled to go into effect until July 1st, 2014. Impacted goods include electricity, piped natural gas and breads, rolls, and buns sold at bakery thrift stores. The annual August back to school sales tax holiday and November Energy Star sales tax holiday have also been repealed. Certain aspects of these changes have already begun to take criticism from those unhappy with these new taxes. New developments are very likely to occur but you can rest assured that the experienced Tax Research Department at Taxware will have all North Carolina Sales and Use tax changes thoroughly researched so your business remains in compliance.
