United States

North Carolina: Department Issues Guidance on Repair, Maintenance, and Installation Services Subject to Sales and Use Tax Effective March 1, 2016

Feb 22, 2016
From KPMG TaxWatch

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Under legislation signed last year, effective March 1, 2016, certain repair, maintenance, and installation services are subject to North Carolina sales and use tax. The North Carolina Department of Revenue recently released two directives addressing the newly taxable services. One directive, SD-16-2, provides guidance on when sales and use tax applies to repair, maintenance, and installation services. The second directive, SD-16-1, addresses definitional changes that must be considered when determining if repair, maintenance, and installation services are taxable.

SD-16-2 notes that the definition of repair, maintenance, and installation services includes calibrating and restoring  tangible personal property, troubleshooting or identifying problems with tangible personal property, and installing tangible personal property (unless the property is installed by a real property contractor).  The definition of a “retailer” was amended to include a person engaged in delivering, erecting, installing, or applying tangible personal property. Excluded from this new definition of retailer are persons that solely operate as real property contractors or that strictly provide repair, maintenance, and installation services, and whose activities do not otherwise meet the definition of a “retail trade.” In other words, repair, maintenance, and installation services performed by a person engaged in a retail trade are subject to retail sales tax unless otherwise exempt, making it necessary to understand what it means to be engaged in a “retail trade.” SD-16-1 provides guidance on the definition of a “retail trade,” which includes “[a] trade in which the majority of revenue is from retailing tangible personal property, digital property, or services to consumers.…” Examples of the types of businesses the changes affect are also provided in the directive. Notably, North Carolina will assume a business is engaged in retail trade in North Carolina if it is classified in the Retail Trade Sector (sector 44-45) of the NAICS code (e.g. hardware stores, electronics and appliance stores, floor covering stores, etc.). A business not in the Retail Trade Sector may meet the definition of “retail trade” provided the majority of revenue is from retailing tangible personal property, digital property, or services to consumers in the state. Per the DOR’s website, the agency will contact all currently registered sales taxpayers by email or regular mail regarding these and other recent changes to the sales tax law. Please contact Nicole Umpleby at 704-335-5586 with questions.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.