NC SALES TAX ON SERVICE CONTRACTS

Beginning January 1, 2014, if you sell Service Contracts, you will be required to collect and pay sales tax on those Service Contracts. Please see the information below from the NC Dept. of Revenue. If you do not have a sale tax number, you will need to apply for one.Please contact your accountant or the NC Dept. of Revenue if you have questions.

Sales and Use Tax Division
North Carolina Department of Revenue
Post Office Box 25000
Raleigh, North Carolina 27640-0001

To Taxpayers:
This form includes changes enacted by the 2013 Session of the General Assembly to the taxes administered by the Sales and Use Tax Division. The 2013 Tax Law Changes publication issued annually by the Department will be available on the Department’s website, www.dornc.com, and will contain detailed explanations of legislative changes. Legislative changes supersede any information previously set forth in Sales and Use Tax Administrative Rules, Technical Bulletins, Notices, Directives, and Private Letter Rulings relating to any subject matter of the legislation.
Part I reflects information regarding changes in sales and use tax rates to various items. Part II includes new transactions subject to sales and use tax as a result of tax modernization efforts. Part III provides information for various sales and use tax exemptions repealed by the General Assembly and various other changes. Part IV provides information regarding miscellaneous items.
The general State, local and transit sales and use tax rates applicable to the sales price of tangible personal property, certain digital products, and certain services is 6.75% in seventy-four (74) counties; 7.00% in Alexander, Buncombe, Cabarrus, Catawba, Cumberland, Duplin, Edgecombe, Greene, Halifax, Haywood, Hertford, Lee, Martin, Montgomery, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry, and Wilkes Counties; 7.25% in Mecklenburg County; and 7.50% in Durham and Orange Counties.

PART II: EXPANSION OF SALES TAX
Effective January 1, 2014
Service Contracts –
G.S. 105-164.4(a)(11) imposes a privilege tax on a retailer at the 4.75% general State and applicable local and transit rates of sales and use tax on the sales price of a service contract. G.S. 105-164.3(38b) defines “service contract” as a warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property.

G.S. 105-164.13(61) provides an exemption from sales and use tax for the sale at retail and the use, storage, or consumption in this State of a service contract for tangible personal property that is provided for any of the following:

a. An item exempt from tax under Article 5 of Chapter 105, other than an item exempt from tax under G.S. 105-164.13(32). G.S. 105-164.13(32) provides an exemption from sales and use tax for the sale at retail and the use, storage, or consumption in this State of sales of motor vehicles, the sale of a motor vehicle body to be mounted on a motor vehicle chassis when a certificate of title has not been issued for the chassis, and the sale of a motor vehicle body mounted on a motor vehicle chassis that temporarily enters the State so the manufacturer of the body can mount the body on the chassis.
b. A transmission, distribution, or other network asset contained on utility-owned land, right-of-way, or easement.
c. An item purchased by a professional motorsports racing team for which the team may receive a sales tax refund under G.S. 105-164.14A(5).
G.S. 105-164.13(62) provides an exemption from sales and use tax for the sale at retail and the use, storage, or consumption in this State for an item used to maintain or repair tangible personal property pursuant to a service contract if the purchaser of the contract is not charged for the item. Where a service contract is subject to tax, the seller should issue Form E-595E, Streamlined Sales and Use Tax Agreement Certificate of Exemption, at the time of purchase for items used by a seller to maintain or repair tangible personal property to purchase such items without payment of tax to seller.

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