NC Sales Tax Exemptions

Rick_B

Rick
Corporate Member
It appears from my limited research that residential capital improvements are allowed exemtion from NC sales tax. We are having a bathroom remodeled - replacement of tub with walk in shower, replace vanity, replace all fixtures. This seems to qualify as a capital improvement that would allow a sales tax exemption on material and labor. Does anyone have more knowledge of this subject than I - who can I contact to get specifics on how to get this exemption. The contractor isn't aware of any such capital improvement exemptions,

Thanks
Rick
 

TracerRound

Larry
Corporate Member
Interested in the answer. I thought the exemption was just labor on a capital improvement like it was prior to 2017 but I am also not sure.
 

tri4sale

Daniel
Corporate Member
It appears from my limited research that residential capital improvements are allowed exemtion from NC sales tax. We are having a bathroom remodeled - replacement of tub with walk in shower, replace vanity, replace all fixtures. This seems to qualify as a capital improvement that would allow a sales tax exemption on material and labor. Does anyone have more knowledge of this subject than I - who can I contact to get specifics on how to get this exemption. The contractor isn't aware of any such capital improvement exemptions,

Thanks
Rick

I've got a little experience with this, but sadly I've learned many vendors are not familiar with it. A lot of contractors still do not charge taxes when doing projects that they should be charging, and remember if they don't the end buyer is ultimately responsible for paying sales tax.

You can get more info here: NCDOR: Real Property Contracts

I've called the NC Dept Revenue a few times with questions regarding this, they've always been good with answers.
 

Willemjm

Willem
Corporate Member
It appears from my limited research that residential capital improvements are allowed exemtion from NC sales tax. We are having a bathroom remodeled - replacement of tub with walk in shower, replace vanity, replace all fixtures. This seems to qualify as a capital improvement that would allow a sales tax exemption on material and labor. Does anyone have more knowledge of this subject than I - who can I contact to get specifics on how to get this exemption. The contractor isn't aware of any such capital improvement exemptions,

Thanks
Rick
We do this every day.

We have to pay sales tax on the goods we purchase for new construction or re-modelling.

The GC or home owner does not have to pay any sales tax on what we invoice. The GC or home owner has to fill out a form, which we keep on file in case of a tax audit.

So here is an example:

I purchase goods at $10,000 I have to pay 7% sales tax means I pay $700 sales tax on my purchase. I have a sales tax exemption, so I only pay my supplier $10,000.

I charge the home owner or GC 18,000 for the project, which includes labor the $10,000 in materials and the $700 in tax. I pay my labour $2,000.

My total costs are $10,000 materials + $700 tax plus $2,000 I pay for labor = $12,700.

I make a profit of $18,000 - $12,700 = $5,300.

The $700 I have to remit to NC state tax department quarterly, the homeowner or GC pays no tax.

Hope that helps.
 

junquecol

Bruce
Senior User
When I retired, I was having to collect both taxes on materials ( at the rate I charged for them, not what I paid for them,) plus tax on the labor. If it was a contract job, had to collect on total price of contract, less any materials that I may have already paid taxes. Even though customer actually paid the taxes, it frosted me to collect taxes on labor, which paid for the items used in business, upon which I had already paid sales taxes (gasoline, tools, electricity. tires, heating fuels etc.) It amounted to a 7.5% income tax surcharge. One of the reason's I closed my business. Still, over three years later, I get monhtly notices to file sales tax reports, along with a check.
 

AllanD

Allan
Corporate Member
The best way to understand sales tax to me is that the final user pays sales tax. So back when I owned my main business, things that we were the end user for we paid taxes on. Those things, like paper towels, cleaning supplies, etc. did not end up in the hands of our customers. However, things that we sold to the customer we got tax free but had to collect the sales tax when we sold them to the final user.
 

Rick_B

Rick
Corporate Member
We do this every day.

We have to pay sales tax on the goods we purchase for new construction or re-modelling.

The GC or home owner does not have to pay any sales tax on what we invoice. The GC or home owner has to fill out a form, which we keep on file in case of a tax audit.

So here is an example:

I purchase goods at $10,000 I have to pay 7% sales tax means I pay $700 sales tax on my purchase. I have a sales tax exemption, so I only pay my supplier $10,000.

I charge the home owner or GC 18,000 for the project, which includes labor the $10,000 in materials and the $700 in tax. I pay my labour $2,000.

My total costs are $10,000 materials + $700 tax plus $2,000 I pay for labor = $12,700.

I make a profit of $18,000 - $12,700 = $5,300.

The $700 I have to remit to NC state tax department quarterly, the homeowner or GC pays no tax.

Hope that helps.
Any idea what that form is? It seems that a contractor that has to pay sales tax is going to get that back from me one way or another - maybe not clled sales tax but built into other costs?

Rick
 

AllanD

Allan
Corporate Member
Apologize. I answered too quick without fully reading. My answer was for general sales tax not capital improvements and sales tax.
 

jlwest

Jeff
Corporate Member
I don't think the home owner is liable however if you pull a permit your property taxes may go up.
 

Willemjm

Willem
Corporate Member
Not to be a smart A$$ but why would I go to the trouble of getting an exemption form if the contractor is just going to add it in somewhere else and then actually add a profit margin to it - doesn't make sense to me

Rick
Because if the contractor gets a tax audit from the state and there is no form, it gets problematic and you may get audited as well. We ask our GC’s to give us a form for each job as a condition of the purchase contract.

Alternatively, if that will be your approach, the contractor can invoice you the sales tax, meaning tax is paid on the total invoice payment you make. That will result in almost double the tax costs to you, which he in turn will have to remit to the state.
 
Last edited:

tri4sale

Daniel
Corporate Member
I don't think the home owner is liable however if you pull a permit your property taxes may go up.

End user is ultimately responsible for paying sales tax, the seller's collect as a convenience (a convenience for the state, not for the buyer)
 

Willemjm

Willem
Corporate Member
End user is ultimately responsible for paying sales tax, the seller's collect as a convenience (a convenience for the state, not for the buyer)
Unless he uses E598CI which gives him exemption for remodeling or new home construction sales tax.
 

Premier Sponsor

Our Sponsors

LATEST FOR SALE LISTINGS

Top