A major revision to the North Carolina Sales Tax rules in 2016 created major headaches for many small businesses and consumers. In August, the NC Legislature passed legislation that is intended to alleviate one aspect of the headache. No, it is not repeal of the “RMI” provisions (sales tax applicable to the Repairs, Maintenance, and Installation services), but does make compliance a little easier for businesses whose activity includes some sales that are taxable under the RMI provisions and some that are not taxable. Keep reading for the details.
We previously communicated about the extension of the North Carolina sales tax to Repair, Maintenance, and Installation services effective March 31, 2016 (click here to read). One outcome of the new law is that businesses were to pay sales tax on the purchase of materials to be used in customer projects that were “capital improvements”, whereas they were not to pay sales tax on materials purchased to be used in RMI activities. One problem is that businesses often did not know at the time of purchase whether the materials would be used in capital improvements or in RMI activities. The original law provided NO relief if you paid sales tax on the purchase of RMI activities. In other words, the business could easily pay sales tax twice, once on the purchase of the materials and again by charging sales tax on the sale of the materials.
Senate Bill 628 provides relief for this conundrum. It provides that a seller of RMI activities is allowed to offset its sales tax liability with sales tax paid upon purchase of the materials. This still can be complicated, but with many businesses, compliance will be easier than the previous rule. Application of this rule is technical, so please consult with us on how to best implement this in your business. A few points in closing:
- This rule does NOT relieve the business of its obligation to charge sales tax on the full sales price of the RMI services.
- This rule is retroactive back to March 1, 2016, so a business can file amended returns to claim the benefits of the credi
- The provision is temporary, at least for now, until July 1, 2018. The Revenue Laws Study Commission is directed to study the feasibility of making the provision permanent, and we hope/anticipate an extension will occur next year.
Please give us a call if we can assist you with this matter.