State Politics

New sales tax prompts confusion, ‘uneven playing field,’ legislators say

Mechanic Deven Lee works on a car at Leith Volkswagen in Cary. Labor charges for car repairs now include sales tax.
Mechanic Deven Lee works on a car at Leith Volkswagen in Cary. Labor charges for car repairs now include sales tax.

The recent expansion of the state sales tax base to repair, maintenance and installation services is creating an uneven playing field among some taxpayers, as similar transactions are treated differently depending on who provides the service.

Cindy Avrette, of the General Assembly Legislative Analysis Division, described to the Revenue Laws Study Committee Tuesday a number of scenarios stemming from the sales tax base expansion causing confusion and concern during tax season.

Committee members said the General Assembly should fix the problems. “Clearly, Cindy has pointed out many examples of an uneven playing field, and I think it’s incumbent on us to deal with those issues,” said Sen. David Curtis, a Lincoln County Republican.

Avrette said changes made to the tax code resulted in similar transactions being taxed differently and that the differences have led to confusion in applying the tax laws.

One example she gave involved plumbing repairs. If a plumbing supplies retailer repairs a customer’s plumbing, those services are taxable. But if “Jack the plumber,” who doesn’t have a retail store, does the same plumbing repairs, they are not taxable, Avrette said.

“You can see how the carve-outs that were created to try not to create new retailers it has created an unlevel playing field and it’s created confusion as you try to work through whether the transaction is taxable,” she said.

Avrette offered suggestions on how the General Assembly could address the problems. Legislation could eliminate different classifications of retailers, so everyone who performs certain services is treated the same from a tax standpoint.

In other words, it could remove the exception that allows a contractor who only provides repair, maintenance and installation services to be considered a non-retailer. That would create a new group of retailers and likely would result in expanding the sales tax base to additional transactions, she said.

Another option would be to more clearly identify what are taxable transactions.

Avrette also recommended a grace period during which the state would relieve taxpayers from liability for underpayment of sales taxes on repair, maintenance or installation services if the taxpayers made a good faith effort to comply with the base expansion. The length of that period would be up to the Legislature.

Sen. Bob Rucho, a Meckleburg County Republican, said legislators have received many phone calls about the unfairness and confusion caused by the base expansion. Said Republican Sen. Jerry Tillman: “I would just say we need a lot of clarity.”