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NC Sales Tax on Labor

Effective March 1, 2016, NC will begin to charge sales tax on labor. It is a complicated process to determine if sales tax applies to a specific transaction. First, it only applies to those businesses considered in “retail trade.” And, it only applies to services considered repair, maintenance, or installation services.

Effective March 1, 2016 NC imposes the general 4.75 state rate of sales and use tax on repair, maintenance, and installation services sold at retail and sourced to the state. The applicable local (2% or 2.25%) and applicable transit (.5%) rates of sales and use tax also apply. There is a two-part process to determine if a transaction is taxable.

First, is the business considered a “retailer?”

Retail Trade is defined as a trade or business in which the majority of revenue is from retailing tangible personal property, digital property, or services to consumers. The term includes activities of a person properly classified in NAICS sector 45-45, buying goods for resale, and rendering services incidental to the sale of merchandise with just a couple of exceptions.

The second test is to determine if the services being provided meet the definition of “repairs, maintenance, and installation.” NC General Statutes defines RMI and states that it includes the following activities.

  • To keep or attempt to keep tangible personal property including motor vehicles in working order to avoid breakdown and prevent repairs.
  • To calibrate, restore personal property including a motor vehicle, or attempt same, to proper working order. The activity may include replacing or putting together what is torn or broken.
  • Installation services except tangible personal property installed or applied by a real property contractor.

The full Directive (SD-16-2) is provided here. For definitions and a discussion on how to determine if a business is actually a retailer, see Directive SD-16-1.