Murky Changes to North Carolina Sales Tax

On March 1, 2016, a new sales tax took effect across North Carolina, which expanded the number of services subject to sales tax.  Previously, businesses which provided labor services and materials, such as auto repair providers, were responsible for collecting sales tax on the materials sold, but not the labor.  However, under the new sales tax, that labor can now also be subjected to sales tax.  The new sales tax requirements are based on whether the majority of a business’ gross receipts come from the sale of goods\materials or the services\labor.  It should be noted that there are numerous exceptions and nuances to this new sales tax, particularly as they apply to North Carolina contractors.   For example, a subcontractor which procures and installs drywall on a construction project, but does not otherwise sell drywall in their normal course of business, is considered to be a “real property contractor” under the new tax law and would not be liable for collecting sales tax on the labor portion of the contract.