North Carolina merchants used to have an easy time figuring out what to charge sales tax on. For the most part, if it was a product – something you could hold in your hand or carry home – it was taxable. Services, on the other hand, were not subject to sales tax. But that simple system is disappearing, as the N.C. Legislature has started to make certain services taxable.
The impulse is understandable. As the economy shifts in the direction of being service-based, the state’s revenues are coming from a smaller and smaller percentage of the retail economy. But the devil is in the details, and a wide range of businesses need to be aware of these changes in state law.
Two categories have been added to the list of what’s taxable: Admission to entertainment events, and service contracts.
Starting at the end of 2013, the tax on tickets applies to concerts, plays, movies, shows and sporting events. It also covers museums, gardens and cultural sites. The law states that “gross receipts” are taxable, and that means not just the price of a single ticket, but also season tickets, memberships that include admission, and those “convenience fees” and processing charges that are part of so many ticket purchases these days.
But if certain “amenities,” such as transportation, parking or admission to special “VIP” areas, are itemized separately, they aren’t subject to the sales tax.
Non-profit organizations don’t get a blanket exemption. They have to collect, and pay, sales tax on admission fees to their fundraising events. But the law includes a few loopholes. For instance: The portion of a charity fundraiser’s admission fee that would be deductible on the patron’s income tax isn’t subject to sales tax, either. An example of this would be a fundraising dinner that costs $100, with half of that covering the cost of food, entertainment, et cetera and the rest going to the nonprofit’s charitable work.
Just to keep things complicated, the law includes a number of other exemptions, but many of these will expire on Jan. 1, 2015. After that date, a few types of events will still be tax-free. Those include anything sponsored by an elementary or secondary school, and charity events in which all admission proceeds go to the group’s charitable purpose. If a nonprofit has a paid director, or compensates anybody else in connection with the event, the tickets are taxable.
Confused yet? You’re not alone.
Other complications involve when ticket taxes are due (it’s when the ticket is sold, even if that’s far in advance of the event) and how an event’s sponsor splits the tax-collecting duties with the event’s venue.
The other newly taxable services are those extended warranties and similar service contracts often sold along with electronics and major appliances. This new tax took effect on Oct. 1 of this year. As with the ticket-sales tax, this includes a tangle of exemptions and exceptions.
North Carolina’s Department of Revenue has a Taxpayer Assistance and Collection Center that can be reached toll-free at 1 (877) 252-3052. But to be sure you’re not overlooking or misinterpreting a requirement that applies to your business, it’s best to consult a tax-law professional.
It’s very likely that, in the next few years, this trend toward taxing services will create additional new obligations for retailers and even nonprofit organizations.
Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at [email protected] or 910-793-1181.
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