New sales taxes will take effect across North Carolina on Tuesday, adding to the cost of services ranging from car repairs to appliance installations.
The legislature approved the additional sales taxes last year – part of a Republican-led shift to lower income taxes by expanding the number of services subject to sales taxes.
Part of the additional sales tax revenue will be distributed to poorer counties. About $84.8 million in new revenue will be divided among 79 suburban and rural counties for schools, community colleges and economic development projects.
Most of the businesses affected are already charging sales tax on such things as parts and other equipment. But until now, the labor cost has been tax-free.
North Carolina’s sales tax rates range from 6.75 percent to 7.5 percent and vary by county. That means a car repair that includes $200 in labor fees will cost up to $15 more starting Tuesday.
“Paychecks are very tight already, and it’s an additional burden when they’ve got an automobile that they’ve got to fix up,” said Reece Hester, executive director of the North Carolina Tire Dealers Association.
Hester says he’s concerned that some customers might delay car maintenance because of the higher costs. And if the customer is months away from a state inspection deadline, the procrastination could result in an unsafe vehicle on the road.
“That’s one of those things that looms in the back of the mind,” he said.
Research shows car repair expenses take up a larger share of income for poorer people. The federal Bureau of Labor Statistics found that people making $30,000 to $40,000 a year spent an average of $630 annually on repairs and maintenance. Meanwhile, people with incomes higher than $70,000 spent an average of $1,300.
The N.C. Democratic Party criticized the tax change Friday on Twitter, calling it “another tax increase brought to middle class families by @PatMcCroryNC.” The governor has said he opposed the tax change but signed the state budget that included it.
Republican legislators say the new sales taxes will be offset by income tax cuts. The cuts will result in savings of about $50 or less for households with less than $30,000 a year in income, or about 10 percent of their tax burden, according to legislative projections.
The new sales taxes are more complicated for repair, maintenance and installation services on homes and other buildings.
Whether a service is taxed will largely depend on whether the firm performing the service is also selling materials – and therefore already collecting sales taxes.
“Thus far, it’s been a bit difficult to truly understand it,” said Jim Pendergrass, executive director of the Plumbing-Heating-Cooling Contractors Association of North Carolina. “There seems to be a lot of exemptions and a lack of clarifications.”
Sales tax requirements will be based on whether the majority of a business’ sales come from parts or equipment. That means a service – unclogging a toilet, for example – would be subject to sales tax with a company whose business is mostly sales but exempt if a customer hires someone whose business is just to provide the service.
“The law doesn’t pick up on the fact that it could create an unlevel playing field,” Pendergrass said.
The N.C. Department of Revenue has been working to inform businesses and answer questions about the changes, spokesman Trevor Johnson said. The agency has issued a series of memos by email and mail to businesses.
“We met with some of the industry groups on a range of topics,” Johnson said.
Some industries managed to escape the new sales taxes. An earlier state Senate proposal would have also taxed veterinary services, pet care and advertising.
“We saw some specific industry areas that, all of a sudden, they’re not subject to this, and it seems strange,” Pendergrass said. “Their lobbyists talked to a different person than mine did.”
What you’ll pay sales tax for, starting Tuesday
Car washes performed by a person
Clothing alterations performed by a retailer
Tombstone or monument installation
Modular home installation
What still won’t be taxed
Self-service and machine car washes
State vehicle inspections
Home repairs where the contractor isn’t selling materials
Nail and hair services
Service contracts on cars