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North Carolina to Tax More Services


 Auto repair services soon to be subject to North Carolina sales tax.

The new North Carolina budget, signed into law by Governor Pat McCrory on September 18, 2015, lowers income tax rates for both individuals and businesses and expands retail sales tax to repair, maintenance and installation services. In addition, the legislation distributes more sales tax revenue to the state’s most rural areas, which typically have few businesses and therefore little sales tax revenue.

Tax more services

Effective March 1, 2016, retail sales and use tax is imposed on the following:

  • “Repair, maintenance, and installation services provided for an item for which a service contract on the item is exempt from tax under G.S. 105-164.41.
  • Repair, maintenance, and installation services purchased for resale.
  • An item or repair, maintenance, and installation services used to maintain or repair tangible personal property or a motor vehicle pursuant to a service contract taxable under this Article if the purchaser of the contract is not charged for the item.”

Repair, maintenance, and installation services are defined in the new budget as follows:

  • “To keep or attempt to keep tangible personal property or a motor vehicle in working order to avoid breakdown and prevent repairs.
  • To calibrate, restore, or attempt to calibrate or restore tangible personal property or a motor vehicle to proper working order or good condition. This activity may include replacing or putting together what is torn or broken.
  • To troubleshoot, identify, or attempt to identify the source of a problem for the purpose of determining what is needed to restore tangible personal property or a motor vehicle to property working order or good condition.
  • To install or apply tangible personal property except tangible personal property installed or applied by a real property contractor pursuant to a real property contract.”

Spread the revenue

In addition to expanding the sales tax base, the budget changes the distribution of additional sales tax revenue for economic development, public education, and community colleges. Rural areas throughout the state will receive additional revenue under this provision. This change takes effect July 1, 2016, “and applies to local option sales taxes collected on or after that date and distributed to counties and cities on or after September 1, 2016” (Section 32.19).

Read the Current Operations and Capital Improvements Appropriations Act of 2015 for additional details.

For or against working families?

The governor’s press release announces the signing of “a common sense budget that helps working families.” However, not all North Carolinians agree. According to the Citizen-Times, the new tax will hurt people on fixed incomes and middle and lower-middle class people. Cedric Johnson of the N.C. Justice Center’s Budget and Tax Center is quoted as saying, “Our tax system is becoming even more upside down in that those who earn the least are paying a larger share.” This position is echoed by Jennifer Hartman of Auto Pro: “I deal with a lot of elderly people. That’ll hit them real bad.”

Sales tax software as a service (SaaS) helps business stay on top of changing sales tax rates, rules, and regulations, such as those about to occur in North Carolina. See how it works.


Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.