Businesspersons or accountants: Have we found the way around the sales tax on services yet?

Will Carter

Will Carter

Well-Known Member
Joined
Mar 23, 2005
Location
Burlington
I keep putting off reading that notice in detail. I guess it's time to figure out if it can be avoided. Only another week to go...

The talking heads at NCDOR seem to know less than I do when I can actually get to talk to Shanikwa.
 
Best i can tell, i don't know...

From what i have read i *think* i am a "real property contractor" and therefore exempt. Biggest PIA is that i am winding down into retirement, and hate to spend the time and money setting it up for just a few months of business.

I have already stopped retail sales last year, disposed of inventory, etc.
 
I mentioned this in a vendor thread. No response. BUT my accountant seems to think it hugely will apply to our industry, even aftermarket upfitting. The only out as I see it is cash and carry labor. I however believe that will end up being a small percentage of business transactions. As I see it right now, the customer gets hit, the owner operator gets hit if he doesn't add it in and over all everything gets more expensive and laden with paper trails.
 
This is what I heard....definatly not talking about me. I'm all about paying any and all taxes that I can.

There is a ceiling company in Kalamazoo.
This company used to sell turnkey packages for new ceilings... definitely not for Floors.

The company sells the product and turns a profit. They also sell the service of installation and turn a very small profit on that as well. They sub out the install work to very very tall guy. The customer pays the ceiling company in full who then pays their subcontractor.
Services and materials are all taxed. Customer pays more.

New way...
The company only charges the customer for the materials and the tax that is associated.
There is an agreement with the customer to pay the very very tall ceiling contractor separately, and leave that up to that subcontractor to bill the customer directly.

It is made clear that cash paying customers may be tax exempt
 
By the parts and labor is free.
Bites you in the ass if you have to warranty something, "but you already said labor is free"
 
Ron said:
By the parts and labor is free.
Bites you in the ass if you have to warranty something, "but you already said labor is free"
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But labor is not free.
So I guess you're saying just to add the labor money to the parts money.

But then the parts money doubles or triples.
So do the taxes.
Don't matter what you say the taxes are from,to me, doing it as you describe, the taxes are still being generated and paid. Correct?

Cash on labor is really the only way around it. And even then, we can't get too greedy, we'll have to claim some of that anyway....just not most of it.
 
Hey short man.

A tall sheetrock guy sells his rock on an invoice and his labor on a handshake.

Hey auditor my customers buy my parts and labor is free.

Or customer pays all check and learns of stupid new rule
 
Dylan W. said:
But labor is not free.
So I guess you're saying just to add the labor money to the parts money.

But then the parts money doubles or triples.
So do the taxes.
Don't matter what you say the taxes are from,to me, doing it as you describe, the taxes are still being generated and paid. Correct?

Cash on labor is really the only way around it. And even then, we can't get too greedy, we'll have to claim some of that anyway....just not most of it.
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Agreed. tax on materials in 7+%. Tax on services is 4.75%. Seems like "Free labor" isn't going to benefit the consumer.


Here is from the NCDOR if anyone hasn't seen it.

Effective March 1, 2016
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Repair, Maintenance, and Installation Services
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- The 4.75% general State and applicable local and transit rates of sales and use tax apply to the sales price of or the gross receipts derived from repair, maintenance, and installation services. The tax on repair, maintenance, and installation services applies to sales occurring on or after March 1, 2016 and to gross receipts derived from such services provided on or after that date.

N.C. Gen. Stat. § 105-164.3(33d) provides the term "repair, maintenance, and installation services" includes the following activities:

a. To keep or attempt to keep tangible personal property or a motor vehicle in working order to avoid breakdown and prevent repairs.

b. To calibrate, restore, or attempt to calibrate or restore tangible personal property or a motor vehicle to proper working order or good condition. This activity may include replacing or putting together what is torn or broken.

c. To troubleshoot, identify, or attempt to identify the source of a problem for the purpose of determining what is needed to restore tangible personal property or a motor vehicle to proper working order or good condition.

d. To install or apply tangible personal property except tangible personal property installed or applied by a real property contractor pursuant to a real property contract.

Repair, Maintenance, and Installation Services Exemptions - N.C. Gen. Stat. § 105-164.13 is amended and provides the following exemptions:

(61a) Repair, maintenance, and installation services provided for an item, other than a motor vehicle, for which a service contract on the item is exempt from tax under N.C. Gen. Stat. § 105-164.4I. Repair, maintenance, and installation services provided for a motor vehicle are subject to tax, except as provided in N.C. Gen. Stat. § 105-164.13(62a) for a manufacturer’s warranty or dealer’s warranty.

(61b) Repair, maintenance, and installation services purchased for resale are exempt from sales and use tax.

(62) An item or repair, maintenance, and installation services used to maintain or repair tangible personal property pursuant to a service contract taxable under this Article if the purchaser of the contract is not charged for the item or services. This exemption does not apply to an item or repair, maintenance, and installation services provided for a motor vehicle pursuant to a service contract exempt from tax under this Article unless the purchaser of the contract is not charged for the item or services. For purposes of this exemption, the term "item" does not include a tool, equipment, supply, or similar tangible personal property used to complete the maintenance or repair and that is not deemed to be a component or repair part of the tangible personal property for which a service contract is sold to a purchaser.

...
Retailer - N.C. Gen. Stat. § 105-164.3(35), as amended, provides the term "retailer" includes "[a] person engaged in business of delivering, erecting, installing, or applying tangible personal property for use in this State, regardless of whether the property is permanently affixed to real property or other tangible personal property, that does not become part of real property pursuant to the tax imposed under G.S. 105-164.4(a)(13) unless the person is one or more of the following:

1. A person that solely operates as a real property contractor.

2. A person whose only business activity is providing repair, maintenance, and installation services where the person’s activities do not otherwise meet the definition of a retail trade."

Retail Trade - N.C. Gen. Stat. § 105-164.3(35b) defines "retail trade" as a "trade in which the majority of revenue is from retailing tangible personal property, digital property, or services to consumers. The term includes activities of a person properly classified in NAICS sector 44-45, buying goods for resale, and rendering services incidental to the sale of merchandise. The term typically includes maintaining an inventory and may include the provision of repair, maintenance, and installation services. Not all activities provided in this subdivision are required for a trade to be considered retail trade."

A person engaged in "retail trade" is a retailer and must treat all transactions as retail sales, including the sale of or the gross receipts derived from repair, maintenance, and installation services, no matter that such person may install or apply tangible personal property that becomes part of or affixed to real property.

Real Property Contractor & Retailer-Contractor - The definition of "real property contractor" in N.C. Gen. Stat. § 105-164.3(33d), as amended, provides the term "does not include a person engaged in retail trade." If a person meets the definition of retail trade, such person cannot act as a "real property contractor" or a "retailer-contractor." A person that meets the amended definition of a "real property contractor" is liable for payment of sales and use tax on taxable repair, maintenance, and installation services purchased to fulfill a real property contract. A person that does not meet the definition of retail trade may operate as a "retailer-contractor." 4

Additional information regarding the changes for a real property contractor and a retailer-contractor will be issued by the Department prior to March 1, 2016. For current information regarding the application of the sales and use tax statutes to real property contractors, refer to the real property contractor overview web page available on the Department’s website, www.dornc.com.

Service Contracts - Following is discussion of the application of the sales and use tax statutes to service contracts for specific items or transactions:

Motor Vehicles - N.C. Gen. Stat. § 105-164.4I(b)(1), as amended, provides the sales price of or the gross receipts derived from a service contract for a motor vehicle is exempt from tax. The exemption in N.C. Gen. Stat. § 105-164.13(62) is amended to remove the term "motor vehicle."

Tangible Personal Property that Becomes Part of or Affixed to Real Property - The definition of "service contract" in N.C. Gen. Stat. § 105-164.3(38b), as amended, includes a contract to maintain or repair tangible personal property regardless of whether the property becomes a part of or is affixed to real property. The retailer of the service contract is required to collect the tax due at the time of the retail sale of the contract and is liable for payment of the tax. Additionally, N.C. Gen. Stat. § 105-164.4I(c) as amended provides that a renewal of a service contract for tangible personal property where the tangible personal property becomes a part of or affixed to real property prior to the effective date of the renewal is subject to sales and use tax.

....

Installation Charges - N.C. Gen. Stat. § 105-164.13(49) which provides an exemption from sales and use tax for installation charges when separately stated on an invoice or similar billing document given to the purchaser at the time of sale, is repealed effective March 1, 2016. By definition, the term "sales price" includes "installation charges." Any installation charges made by a retailer as part of the retail sale of tangible personal property, certain digital property, and taxable services are subject to the applicable rate of tax for the product as set forth in N.C. Gen. Stat. § 105-164.4(a), no matter that installation charges may be separately stated by the retailer.

Any installation charges by a retailer to provide telecommunications service and ancillary service, video programming service, piped natural gas, and electricity are subject to the 7.00% combined general rate of tax. Installation charges that are part of the purchase price of an item subject to the 1.00% certain machinery and equipment privilege tax, with maximum tax of $80.00 per article, are subject to tax.

Manufacturer’s Warranty or Dealer’s Warranty - N.C. Gen. Stat. § 105-164.13(62a) codifies the historical treatment of a dealer’s and manufacturer’s warranty for sales and use tax purposes. The exemption provides that a "replacement item, a repair part, or repair, maintenance, and installation services to maintain or repair tangible personal property or a motor vehicle pursuant to a manufacturer's warranty or a dealer's warranty [are not subject to sales and use tax]." The exemption defines a "dealer’s warranty" and a "manufacturer’s warranty" as follows:

Dealer's warranty - An explicit warranty the seller of an item extends to the purchaser of the item as part of the purchase price of the item.

Manufacturer's warranty - An explicit warranty the manufacturer of an item extends to the purchaser of the item as part of the purchase price of the item.
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Ignore my post.
SC has new regs as well but they are different. I thought they were the saeme carry on.
 
Correct me if I'm wrong, but this is how it was explained to me by my accountant. And I may have misheard her too.

Apparently NC lowered the tax rates on individuals, so they added this tax to businesses to make up for the difference. So basically people are excited to have lower taxes when they are really going to be paying the same or more in other ways. Just buying votes is all it really was, net is roughly the same for all involved, but just makes it harder for us small businesses to keep track of shit.
 
Resale stuff is all the same, my accountant also said contract, labor to another party made that party liable to collect tax on the labor involved to the end user. He also stated this was a round about way to lead to no income tax on the state level. We then bitched together on how all of this does nothing but place the burden on the working class, ie middle to upper income earners.
 
I also understand state and county percentages are used to figure the rate. May be misunderstood on that one. Either way my quick books just got less quicker.
 
So how does this apply to say for example a construction company or similar where they sub-contract out work. Are they required to pay tax on the work done by the sub?
 
This is the fuzzy logic written part of it nobody has been able to clear up for me. The word tangible property got thrown around. We'll hell anything could or could not have property value..... I also wondered if those who don't currently have a resale number would labor for them be liable for tax collection?? If not how many will start to pay tax upfront and not screw with a resale number. Then the state would not get any higher tax revenue from mark up and increase in the cost of goods sold. I seriously doubt well established large identities would turn to this but that would be a whole new level of screwing them out of a tax base. As is, my understanding is: any trade involving a part, sellable item (object) that requires a physical person to interact with it to make it function or replace to continue functioning it is taxable. Plumbers, Handy men, mechanics, electricians, even programmers from how I got it.
 
Blaze said:
Correct me if I'm wrong, but this is how it was explained to me by my accountant. And I may have misheard her too.

Apparently NC lowered the tax rates on individuals, so they added this tax to businesses to make up for the difference. So basically people are excited to have lower taxes when they are really going to be paying the same or more in other ways. Just buying votes is all it really was, net is roughly the same for all involved, but just makes it harder for us small businesses to keep track of shit.
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Unless your a doctor or lawyer. They are exempt.
 
Blaze said:
Correct me if I'm wrong, but this is how it was explained to me by my accountant. And I may have misheard her too.

Apparently NC lowered the tax rates on individuals, so they added this tax to businesses to make up for the difference. So basically people are excited to have lower taxes when they are really going to be paying the same or more in other ways.
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Not if you make a lot of money but are a stingy DIYer- and don't pay anybody else to ever do any work for you. Then you come out ahead! :flipoff2:

so really this is about screwing small business and improving things for DIY materials companies? Did Home Depot sponsor this?
 
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