NCHBA lobbyists Steven Webb, Mike Carpenter and Tim Minton on the floor of the State Senate as the General Assembly’s Short Session draws to a close. (Photo Credit – NCHBA)
No single piece of legislation passed by the North Carolina General Assembly this year will have a bigger impact on home builders and remodelers than HB 1030 (2016 Appropriations Act). The finance portion of this legislation contains a number of important tax law changes that modify the taxation of repair, maintenance and installation (RMI) services, which became effective on March 1 of this year.
The March tax changes required subcontractors who met the definition of ‘retailer’ to charge sales tax on their labor. For a number of North Carolina subs who offer turn-key services to builders in both new construction and remodeling activities, this created confusion over what services are subject to taxation and which are not. The question often turned on who was performing the service rather than the service itself, creating an uneven playing field.
Even before these changes became effective, the North Carolina Home Builders Association (NCHBA) began meeting with key legislators and the Finance Committee legislative staff in an effort to find a solution. NCHBA’s goal was to eliminate any sales tax on installation service labor for both new construction and remodeling activity, as well as to limit the sales tax on labor for remodeling repairs. The budget act passed last week by the General Assembly reflects the accomplishment of that goal.
All labor pursuant to a “real property contract” (which is between a real property contractor and another person to perform construction, reconstruction, or remodeling with respect to a capital improvement) is now exempt from taxation. A “capital improvement” is defined as “an alteration to real property that is new construction, reconstruction, or remodeling of a building, structure, or fixture on land that becomes part of the real property or is permanently installed in the real property”.
Among the specific examples of a “capital improvement” is “performance of work that requires the issuance of a permit under the State Building Code” (a residential project that costs at least $15,000). Other examples include painting, wallpapering and landscape services. Specifically excluded from taxation are services performed to resolve an issue that was part of a real property contract within twelve months of the new structure being occupied for the first time (warranty call-backs). Home inspections, debris removal, pest control and fees for inspections required by law are also specifically exempt.
Those subcontractors who operate as a “retailer-contractor” (i.e., provide subcontractor services to builders and others) are also exempt when the entity acts as a real property contractor.
This was a major legislative win for NCHBA and its members, which will literally save millions of dollars for home builders, remodelers, and their customers. REBIC is proud to have been able to support their efforts, and thanks the General Assembly for passing this important piece of legislation.
(Source: North Carolina Home Builders Association)