|North Carolina Dealers and Auto Finance Providers,
Many of you may be aware of the confusing bulletins being circulated in the industry regarding changes to the North Carolina Vehicle Service Contract Tax. The bulletins and emails have led some to believe that the vehicle service contract tax is being repealed effective March 1, 2016.
Based on the NC Department of Revenue’s bulletin of Feburary 11 and latest clarification issued February 19, it is FNI’s opinion that for most used car dealer service contract programs, and especially those most common in the independent dealer market, the 2014 tax will continue, and no changes should be made to your tax collecting and remitting process.
The legislation responsible for the confusion may act as a partial repeal of the 2014 tax, but only for vehicle service contracts that “COVER THE ENTIRE CAR” – and according to NC DOR, that means exclusionary coverage, rather than the kind of stated component contracts most common in the used car industry. The February 19 bulletin makes it clear that contracts that cover just “components” or “systems” but not the entire car are still subject to the tax.
The national vehicle service contract industry association (SCIC) is still working with NC DOR for further clarification – under the current interpretation, dealers and finance companies will have to determine which contracts are subject to tax and which are not, and the very loose definition provided by DOR creates uncertainty for making those determinations, and creates a high risk of improperly assessing or neglecting the tax. The SCIC reports that new legislation is expected in NC this year to provide further clarification as well.