Effective March 1, 2016, the state of North Carolina will be increasing the number of service transactions subject to Sales and Use Tax. The Current Operations and Capital Improvements Appropriations Act of 2015 authorizes the fiscal year 2016-2017 annual budget, but also contains provisions affecting North Carolina Sales and Use taxes. The exemption for separately stated installation charges allowed by N.C. Gen. Stat. § 105-164.13(49) has been repealed effective March 1. Several sections in Chapter 105 have been added and amended to apply sales tax to gross receipts derived from, “repair, maintenance, and installation” services. These newly taxable services include both installation, repairs, and maintenance to tangible personal property, but also to automobiles. N.C. Gen. Stat. § 105-164.3(33g).
Service providers that solely provide services to real property, or those services providers who are not engaged in retail trade and whose only business activity is the provision of of services are exempted. N.C. Gen. Stat. § 105-164.3(35). The determination of whether a business activity constitutes retail trade requires a case by case analysis with respect to the type of business activity engaged by the business with reference to the North American Industry Classification System code.
The North Carolina Department of Revenue has issued multiple forms of guidance which expand and help clarify the applicability of these new amendments to the Sales and Use statutes. These documents can be accessed via the North Carolina Department of Revenue’s Sales and Use Tax Technical Reference website. Further guidance germane to the issue of retail trade is included in Directive SD-16-1. North Carolina’s Directives are a form of non-binding written guidance to either set out the Department’s interpretation of a tax law, explain the application of a tax law to stated facts, or to clarify issues on which the Department has received numerous requests. These Directives then should be taken with a grain of salt, and at least with the knowledge that they may not be repaired, maintained, or installed.