After complaints about the state’s new sales tax on auto repair services, a Republican senator wants to exempt some small businesses from collecting the tax.
On Tuesday, Sen. Stan Bingham of Davidson County filed Senate Bill 755, which would eliminate the tax for businesses that have three employees or fewer.
“It’s definitely a small business bill,” Bingham said. “These guys aren’t CPAs or accountants, or they wouldn’t be running a little garage to begin with. It’s a problem for them.”
The new sales tax affects most repair, maintenance and installation services and took effect in March. The expanded tax is part of a Republican-led shift to lower income taxes by expanding the number of services subject to sales taxes.
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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 now costs up to $15 more than it did in February.
Bingham said the tax burden hits people in his rural district because many of them can’t afford new cars and have frequent repairs. “I’m sympathetic, because I understand that it does make a difference,” 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.
Sen. Bob Rucho, the Senate Finance Chairman and the architect behind many of the state’s recent tax changes, said Tuesday that he’s unfamiliar with Bingham’s proposal. He had little to say about what tax changes might be in the works for the legislature’s short session, which began this week.
“We’re in the process of looking at all that stuff now,” Rucho said.
Senate leader Phil Berger said last week that he has heard concerns about “uneven results” of the expanded sales tax.
Sales tax requirements are 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 only to provide the service.
Bingham said he was unsure how much revenue would be lost if his bill passes. “It’ll depend on how much this affects the budget,” he said.