SB 861 — Repeal Service Tax.

FILED SENATE GENERAL ASSEMBLY OF NORTH CAROLINA MaySESSION 2,2023 2024S S.B.1 SENATE BILL 861 Short Title:

861 SESSION 2023 PRINCIPAL CLERK S D SENATE BILL DRS15427-NIf-161A Short Title:

Rules and Operations of the Senate May 6, 2024 A BILL TO BE ENTITLED AN ACT TO REPEAL THE SERVICE TAX AND TO MAKE VARIOUS CONFORMING CHANGES NECESSARY TO EFFECTUATE THE REPEAL.

The general rate oftaxisoftax is four and three-quarterspercent (4.75%).Thepercentagerates areas follows:

The sales price of or gross receipts derived from repair, maintenance, and installation services to tangible personal propertypropertyor or certain digital property, regardless of whether the tangible personal property or certain digital property is taxed under another subdivision in this section or is subject to a maximum tax under another subdivision in this section.

… (11) Thegeneral rateoftaxappliesrateoftax applies to thesalespriceoforthegrossreceiptsthesalespriceofor thegrossreceipts derived from a service contract.

*DRS15427-NIf-161A**S861-v-1* General Assembly Of North Carolina Session 2023 …." SECTION 1.(b) G.S.

– The bundle includes a service, and the retailer determines an allocated price for each item in the bundle based on a reasonable allocation of revenue that is supported bybythe the retailer's business records kept in the ordinary course of business.

– A real property contractor is the consumer of the tangible personal propertypropertyor or certain digital propertypropertythat that the real property contractor purchases, installs, or applies for others to fulfill a real propertypropertycontract contract and that becomes part of real propertypropertyor or used to fulfill the contract.

A person may substantiate that a transaction is subject to tax as a real property contract or a mixed transaction in accordance with subsection (a) of this section by records that Page 2 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 establish the transaction is a real property contract or by receipt of an affidavit of capital improvement.

Any purchase of tangiblepersonaltangible personal propertyor certain digitalpropertydigital topropertyto fulfill thereal property contract is taxed in accordance with this section.

DRS15427-NIf-161ASenate Bill 861-First Edition Page 3 General Assembly Of North Carolina Session 2023 (3) More than twenty-five percent (25%) of the time spent managing the real property for a billing or invoice period is attributable to repair, maintenance, and installation services taxable under this Article and not excluded by subsection (b) of this section.

The tax applies to the sales price of or the gross receiptsderivedfromthetaxablerepair,maintenance,andinstallationservices portion of the propertypropertymanagement management contract.

The charges for the taxable repair, maintenance, and installationservices must be separatelyseparatelystatedon stated on theinvoice or similar billing document given to the customer at the time of the sale.

A real propertypropertymanager manager acts as a retailer and makes a sale at retail when it provides repair, maintenance, and installation services taxable under this section unless a statutory exemption in G.S.

Page 4 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 …." SECTION 1.(i) G.S.

If the amount refunded to the purchaser bybythe thepersondoespersondoes not includethesalestax paid, thenthepurchasermaythenthepurchasermayapply apply to the Department for a refund of the pro rata amount of the tax paid based on the taxable amount of the service contract refunded to the purchaser.

Taxes for which a refund is allowed directlydirectlyto to the purchaser for sales tax paid on a service contract are not an overpayment of tax and do not accrue interest as provided in G.S.

DRS15427-NIf-161ASenate Bill 861-First Edition Page 5 General Assembly Of North Carolina Session 2023 (3) The percentage of the presumed sales price that is equal to the percentage of the service in the contract that is not taxable at the combined general rate, if any part of the service in the contract is not taxable at the combined general rate.

The Page 6 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 refund allowed under this subsection does not apply to purchases of electricity, telecommunications service, ancillary service, piped natural gas, video programming, or a prepaid meal plan.

… (20) A constituent institution of The University of North Carolina, but only with respect to sales andusetaxpaidandusetax paid byit fortangiblepersonal propertypropertyorservices orservices that are eligible for refund under this subsection acquired by it through the expenditure of contract and grant funds.

A general direct paypaypermit permitmaynot may not be used for purposes identified in subsections (a1), (a2), (a3), or (b) of this section.

The tax is payable when DRS15427-NIf-161ASenate Bill 861-First Edition Page 7 General Assembly Of North Carolina Session 2023 the property is placed in use or the service is received.

Where a seller cannot or does not separately state installation charges that are a part of the sales price of tangible personal propertypropertyor or certain digital propertypropertyfor for a boat, an aircraft, or a qualified jet engine on the invoice or other documentation given to the purchaser at the time of the sale, tax is due on the total purchase price.

105-187.3 when applying for a certificate of title for a motor vehicle purchased bybythe the retailer for a limited possession commitment.

When a limited possession commitment is sold to another retailer, the seller of the limited possession commitment should provide to the purchaser of the limited possession commitment the documentation showing that theservicecontract andapplicablesales taxes wereseparatelystated at the time the limited possession commitment went into effect and the new retailer must retain theinformation to support an allocationfortaxcomputedonthegrossreceiptsallocationfortax computedonthegrossreceipts subject to highway use tax.

Page 8 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 …." SECTION 1.(q) G.S.

… DRS15427-NIf-161ASenate Bill 861-First Edition Page 9 General Assembly Of North Carolina Session 2023 (61) A motor vehicle service contract.

A motor vehicle emissions and safetysafetyinspection inspection fee imposed pursuant to G.S.

Alteration and repair of clothing, except where the service constitutes a part of the gross receipts derived from the rental of clothing subject Page 10 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 to tax under G.S.

This exemptiondoesexemption does not apply to charges billedto acustomerforrepair,maintenance,andinstallation services or a contribution in aid of construction and are included in the gross receipts derived from items subject to the combined general rate under G.S.

… DRS15427-NIf-161ASenate Bill 861-First Edition Page 11 General Assembly Of North Carolina Session 2023 (61c) Installation charges that are a part of the sales price of tangible personal property purchased by a real property contractor to fulfill a real property contract for an item that is installed or applied to real property, provided the installation charges are separately stated and identified as such on the invoice or other documentation given to the real property contractor at the time of the sale.

Theexemption includesanylaborcosts provided bybythereal thereal property contractor, including employees' wages, or labor purchased from a third party that would otherwise be included in the definition of "purchase price." (61d) Installation charges thatareapartofthesalesprice oforgrossreceipts derived from repair, maintenance, and installation services or installation charges only purchased by a real property contractor to fulfill a real property contract, provided the installation charges are separately stated and identified as such on the invoice or other documentation given to the real property contractor at the time of the sale.

(62a) A replacement item, a repair part, or repair, maintenance, and installation services item or repair part used to maintain or repair tangible personal propertypropertyor or a motor vehicle pursuant to a manufacturer's warrantywarrantyor or a dealer's warranty.

Page 12 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 "§ 105-164.13E.

––Aqualifyingfarmeris Aqualifyingfarmeris apersonwho has anannualan annual incomefrom farming operations for the preceding taxable year of ten thousand dollars ($10,000) or more or who has an average annual income from farming operations for the three preceding taxable years of ten thousand dollars ($10,000) or more.

105-164.28A is exempt from sales and use tax to the same extent as if purchased directlydirectlybythe by the person who holds the exemption certificate.

A person that purchases an item exempt from tax under this subsection must DRS15427-NIf-161ASenate Bill 861-First Edition Page 13 General Assembly Of North Carolina Session 2023 maintain records to substantiate that it is used to provide a service for a person who holds a wildlife manager exemption certificate.

The term does not include the repair, replacement, or installation of electrical or plumbing components, Page 14 DRS15427-NIf-161ASenate Bill 861-First Edition General Assembly Of North Carolina Session 2023 water heaters, gutters, and similar individual items that are not part of new construction, reconstruction, or remodeling.

– A person who does not have a place of business in this State, is registered for sales and use tax purposes in a taxing jurisdiction outside the State, and is engaged in the business of acquiring, bybypurchase, purchase, consignment, or otherwise, tangible personal property or certain digital property and selling the property outside the State or in the business of providing a service.State.