Email Mike Email
Residential Real Estate
Dec 1, 2016

New Sales Tax Legislation Affects Property Owners Associations

Sponsored Content provided by Mike Stonestreet - Co-Owner/President, CAMS (Community Association Management Services)


A recent North Carolina Sales Tax law has a direct impact on the budget of just about every property owners association. 

On July 1, the state legislature passed House Bill 1030 - Current Operations and Capital Improvements Appropriations Act of 2016, also known as the “budget bill.” In it are a number of noteworthy changes to current sales tax statutes, the most significant of which affect taxation of repair, maintenance and installation (RMI) services. RMI are services performed on tangible personal property. New rules went into effect making certain RMI services taxable.

Depending on various factors, under these current rules, the following services could be taxable: installation of plumbing fixtures and flooring; pool repair and maintenance services; and pond maintenance, among others. The sales tax rate varies depending on the county in which the association is located.

Although HB 1030 was intended to clear up confusion about the original 2015 tax bill, it continues to create a lot of uncertainty for both companies and consumers. Taxability depends principally on the nature of the company providing the service. The result is RMI services are taxable when provided by some companies, but those same services may not be taxable when provided by a different company.

For example, in the current law, a significant consideration is whether or not a company is in “retail trade,” a conclusion reached by either meeting certain industry classifications or analyzing the source of the company’s revenues. A business classified as a retail trade is required to tax all RMI services unless one of a few narrow exceptions is met. This particular provision resulted in many services performed as part of real property contracts being taxable.

HB 1030 removes all references to “retail trade,” making the determination for many taxpayers much simpler. However, effective Jan. 1, 2017, many other RMI services will become taxable under HB 1030. The default provision is that all RMI services will be taxable unless specific exceptions are met.

One notable exception is for RMI services performed on tangible personal property that becomes part of real property and qualifies as a “capital improvement.” For example, a hot water heater and an HVAC unit are tangible personal property that become affixed to real property. If either of these is installed as part of a new construction project, reconstruction or remodeling project (these terms are specifically defined), then the installation charge would not be taxable.

However, if the installation is done merely to replace an existing unit, the installer will be obligated to impose sales tax on the labor charge. Interestingly, the installation company might not readily know whether or not the work is part of a capital improvement project, so they may not know to tax the installation charge.

One good thing with regard to property owner associations is a number of typical property owner expenses are exempt in HB 1030, including: landscaping; snow removal; pest control services; and services on roads, driveways, parking lots and sidewalks.

Many other services, however, are at risk of becoming taxable on Jan. 1, 2017. While much clarity is needed, newly taxable services could include the following: minor repair and maintenance services; rekeying doors; and swimming pool cleaning.
It may be possible to reduce the N.C. Sales Tax an association pays by separating certain service contracts. For example, pool maintenance and repair – a taxable service - can be separated from cleaning the pool restroom, which is a non-taxable service. Check with your accountant to see other changes that may reduce the sales tax owed by your association.

In addition, many of the RMI services that are taxable under the currently enacted rules will continue to be taxed.

Mike Stonestreet is a 28-year veteran of the professional HOA management industry who has achieved one of the highest education-based designations in the field, that of Professional Community Association Manager (PCAM). Community Association Management Services (CAMS) has been a leading association management company since its inception in 1991. CAMS is a trusted provider of management services for more than 265 associations throughout North Carolina, South Carolina and Georgia. To find out how CAMS can benefit your community, call 910-256-2021, email [email protected], or visit www.CAMSmgt.com.

 


 

Other Posts from Mike Stonestreet

Cams 300x250 animated ad
Ico insights

INSIGHTS

SPONSORS' CONTENT
Billhunter300x300 b&w

Using the Science of Persuasion for Your Business

Bill Hunter - Wilmington Design Company
Sabrinaheadshot300x300

What are We Selling?

Sabrina Davis - Port City Signs & Graphics
Dallas headshot 300x300

Unforeseen Challenges to Third-Party Sales

Dallas Romanowski - Cornerstone Business Advisors

Trending News

Mall Redevelopment Plans Show Grocery Store For Sears Space

Cece Nunn - Jun 14, 2018

City, County Plan To Buy Echo Farms Facilities, Open Space For $1.7M

Cece Nunn - Jun 13, 2018

Local Restaurant Leaders Dish About The Restaurant Business

Jessica Maurer - Jun 13, 2018

Mad Mole Brewing Now Open

Jessica Maurer - Jun 13, 2018

At Annual Conference, Economic Developers Say CCX Talks Are Ongoing

Christina Haley O'Neal - Jun 13, 2018

In The Current Issue

Mirimichi Looks To Changing Landscape

Russ Britton started his sustainable landscape products company with a star-studded partnership and plans to continue to grow Mirimichi Gree...


Berry Farms Weather The Ups And Downs

The weather might have made the 2018 growing season challenging for local berry farmers thus far, but it has not slowed demand for straight-...


Banks Respond To Dodd-Frank Changes

Just how will the much-trumpeted recent changes to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act affect local financial...

Book On Business

The 2018 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2018 Power Breakfast: The Main Event
2018 WilmingtonBiz Expo - Keynote Lunch with Eric Dinenberg, Rouse Properties
2017 Health Care Heroes