North Carolina Sales and use Tax Developments for 2017 (December 26, 2017)
Ken Martin, Stancil & Company
After two years of sweeping changes to North Carolina Sales Tax laws, the year 2017 was relatively quiet. Senate Bill 628 and an “Important Notice” issued by the North Carolina Department Revenue (NCDR) both were intended more to clarify existing law than to write new law.
As a brief refresher, North Carolina enacted new legislation effective in 2016 that introduced sales tax on Repair Maintenance and Installation (RMI) services while continuing to exempt services associated with capital improvements. The practical impact is this.
- For RMI services, contractors do not pay sales tax on the purchase of materials; instead, they charge sales tax on the full sales price of the service.
- For capital improvements, contractors continue to pay sales tax on the purchase of materials but charge no sales tax on the sales price on the service.
Landscapers largely escaped the application of this new RMI sales tax because landscaping services were included by law in the definition of capital improvements.
The definition of Landscaping Service was changed in Senate Bill 628. It now reads as follows:
Landscaping: A service that modifies the living elements of an area of land. Examples include the installation of trees, shrubs, or flowers on land; tree trimming; mowing; and the application of seed, mulch, pine straw, or fertilizer to an area of land. The term does not include services to trees, shrubs, flowers, and similar items in pots or in buildings.
Overall, this is a broader definition than before, notwithstanding the new limitations in the last sentence. In addition, the application of pesticides has been deleted as an example of landscaping.
Senate Bill 628 contains another change that may impact landscapers. Replacement or installation of decks and patios are now specifically listed as capital improvements.
NCDR’s notice provided examples of capital improvements and RMI services, including a several related to landscaping and lawn care. The following are considered capital improvements: installation or complete replacement of fences, walks, fountains (except free-standing) and sprinkler systems.
On the other hand, these were found to be taxable RMI Services: repair, maintain or replace landscape lights; repair, maintain or install moveable ponds or free-standing fountains; repair fences and gates; repair, maintain or replace component parts of underground lawn sprinkler systems.
You are advised to consult a professional tax advisor regarding application of these new rules to your business and specific transactions.
NC Sales & Use Tax Webinar - An Update for Green Industry Businesses (March 4, 2016)
On March 4, 2016, NCNLA hosted a webinar with Ken Martin of Stancil & Company to examine recent changes to North Carolina's sales & use tax law and to better understand potential impacts on NCNLA member businesses. Both the webinar and the PowerPoint presentation are provided for members below:
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