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Stephen G.
Stephen G., Sr Income Tax Expert
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Question about the new NC sales and use tax that started

Customer Question

question about the new NC sales and use tax that started March 1st 2016
I am a sole prop of a plumbing business. when I get a call for a job , I go out give them a total price for the job , I then go and purchase the materials I need for the job at a supply house and pay sales tax right then, I am not a retailer, I do not sell any materials anywhere. I only purchase what I need for each job and use it right then on that job , I do not itemize my bills or sell my parts , I charge one price
Am I now responsible for this new tax or does this not apply to me ?
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
I would say I was a real property contractor but would like to clarify that I would be correct and not responsible for this new tax
as stated here in NCDOR SD-16-1
Example: A person engaged in business in North Carolina enters into contracts with North Carolina consumers to install wall-to-wall carpet. This person agrees to provide the carpet, padding, and other tangible property and the labor to complete the required work per the contracts. The person does not sell carpet at retail from any location or establishment inside or outside the State. Rather, the person purchases the necessary carpet, padding, and other tangible property on an as needed basis from sellers and pays tax at the time of purchase on such items. This person does not meet the definition of “retail trade” since the person is solely operating as a real property contractor
Expert:  Stephen G. replied 1 year ago.

Here's the example in the law that pertains to Plumbers:

A plumber enters into a contract with a customer to repair a leaking toilet. The plumber invoices the customer a line item charge for a new flapper in the amount of $4.99 and a line item charge for a separately stated service call fee in the amount of $25.00, for an invoice total in the amount of $29.99. Such a repair made on or after January 1, 2015 by the plumber is a real property contract and the general 4.75% State rate and 2.00% local rate of sales and use tax are due on the purchase price of the toilet flapper and any other tangible personal property used by the plumber to repair the toilet. If the purchase price of the flapper and any other tangible personal property used to install the flapper is $2.00, the 6.75% total rate of sales and use tax is applied to the $2.00, resulting in applicable sales or use tax of $0.14.

I would add, just for clarification that if you are doing a job for a Building Contractor, he becomes the ultimate consumer under the law, so you must charge him the sales tax for any materials you use.

Also, you will need to obtain a "Resale Certificate" from the state so that when you purchase the materials, you will not be charged the sales tax. The reason that you can't just pay the sales tax to your plumbing supplier and pass it on to your customer, is because the state wants the sales tax on any mark-up that you charge the customer on the materials.

In other states, what happens is that if you don't itemize the materials on your invoices, you have to charge the sales tax on the entire invoice, which of course quickly puts you at a competitive disadvantage. These days, consumers are sure to complain that they should only have to pay sales tax on the materials, not the labor.

This is the typical way the sales tax is handled throughout the country when it comes to your type of business.

Customer: replied 1 year ago.
ok I just called and talked to the NC dept. of revenue, and told them that I am a sole prop of a plumbing business. when I get a call for a job , I go out give them a total price for the job , I then go and purchase the materials I need for the job at a supply house and pay sales tax right then, I am not a retailer, I do not sell any materials anywhere. I only purchase what I need for each job and use it right then on that job , I do not itemize my bills or sell my parts , I charge one price
I do not itemize my bill, I do not sell parts to my customers, I simply purchase what I need for that job and use it and charge a total price , I do not sell any materials , and they said , that I am a real property contractor, and this new sales that would not effect me , I can continue to pay sales tax when I purchase my supplies , and I do not charge sales tax because I am not a retailer , I am a real property contractor
Customer: replied 1 year ago.
The definition of “retailer,” as amended effective March 1, 2016, provides that a person who solely operates as a real property contractor is not a retailer
Expert:  Stephen G. replied 1 year ago.

Well, that's fine, but it's wrong.

The example comes right from their website.

I take it this is a new tax for NC?

This often happens when a new tax goes into effect.

Eventually, what will happen is the auditors will visit the Plumbing Suppliers, obtain the names of the plumbers doing business with them, and they will be off & running.

Perhaps if you were to call tomorrow, you'd get a different answer.

I'd suggest you ask about the example they have published and why you don't have to follow that guidance.

I've gone through this very same issue many times before in other states & eventually things will settle down & get straightened out.

Try to get what you were told in writing and see what happens.

You have to decide what course of action to take, but you don't want to do it based upon a phone call where you have no idea what training the individual has that you are speaking with. Even the IRS says you can't rely on anything they tell you over the phone.

It makes no difference to me; I'm just trying to protect you; the NC DOR is not my concern, you are.

Customer: replied 1 year ago.
I just trying to protect my self too, but doesn't this only apply to the retail trade and the plumber in this example sold his material as stated on his invoice, and the carpet installer in this example didn't , he just uses what materials he needs and pays taxes on it at the supplier and is considered a real property contractor,A person engaged in business in North Carolina enters into contracts with North Carolina consumers to install wall-to-wall carpet. This person agrees to provide the carpet, padding, and other tangible property and the labor to complete the required work per the contracts. The person does not sell carpet at retail from any location or establishment inside or outside the State. Rather, the person purchases the necessary carpet, padding, and other tangible property on an as needed basis from sellers and pays tax at the time of purchase on such items. This person does not meet the definition of “retail trade” since the person is solely operating as a real property contractor. and it states clearly on there website that a real property contractor is not liable for this new tax
Customer: replied 1 year ago.
I do pay sales tax when I purchase any materials
Expert:  Stephen G. replied 1 year ago.

OK, I understand.

In most states, the only Contractor that is considered the consumer is the General Contractor building a house or a road or something similar. All the subs charge the General Contractor for materials only.

That way, a plumber for example, working for either a General Contractor or a Homeowner, buys a toilet for $150. at his plumbing supply house for wholesale and doesn't pay a sales or use tax. He then charges the General Contractor $165. (for example at a cost + 10% contract), and collects a sales tax based upon the $165., so the state gets the sales tax on an extra $15. rather than if the plumber paid the sales tax to his supplier on the $150.

The next day, the Plumber buys the same toilet to replace a toilet for a homeowner, he charges the homeowner the retail price of the toilet at $250. & collects the sales tax on that; he also charges 250. to install it, so he gets $500. for the job and the state gets the sales tax on an extra $100. than if the Plumber paid it to his supplier.

So, at this point, NC isn't doing it that way & is treating the subcontractors or any contractors doing business with the public the same as General Contractors in my example.

When a General Contract sells a house to a new homeowner, obviously there's no sales tax on the transaction (there are enough other taxes to pay for the homeowner).

Eventually, NC may see the chance to obtain additional revenue and change the rule to the more conventional system that I described and that is in place in many states.

But in the meantime, you are off the hook for the record keeping & aggravation.

Expert:  Stephen G. replied 1 year ago.

If you are part of a trade group of contractors and/or builders, I'm sure this will be a topic of interest at a meeting and you should be able to confirm that everyone is handling it the same way.

Customer: replied 1 year ago.
Not happy with your answer, as you told me I was wrong to start with until I explained it to you so, I don't expect to get charged for this question
Expert:  Stephen G. replied 1 year ago.

I'm sorry you feel that way. I researched the question, found the example of the Plumber and passed it along. You got a different answer. I explained it the best I could based upon what you told me. A carpet installer is hardly a plumber.

Unfortunately, I don't control the payments here, nor have I, not will I receive anything for my time in attempting to assist you. You will have no problem in receiving a refund for whatever you paid; I don't have access to that information.

You will need to contact customer service to obtain a refund; you don't need a reason, we have a 100% satisfaction guarantee.

Thanks for using JustAnswer.com & if you have any need in the future I hope we can do a better job to satisfy you.

Steve G.