2018 Sales and Use Tax Law Changes

The 2017 and 2018 General Assembly added new defined terms and amended multiple definitions for existing defined terms. The changes and their effective dates are as follows:

The definition of the term is amended to include the defined term “repair, maintenance, and installation services.” The definition of the term as amended is “. . . [o]ne or more of the following:
. . . 
e. Painting or wallpapering of real property, except where painting or wallpapering is incidental to the repair, maintenance, and installation services
. . . 
k. An addition or alteration to real property that is permanently affixed or installed to real property and is not an activity listed in subdivision (33l) of this section as repair, maintenance, and installation services.” [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term, as amended, is “[a] machine commonly thought of as an appliance operated by gas or electric current. Examples include a dishwasher, washing machine, clothes dryer, refrigerator, freezer, microwave, and range, regardless of whether the range is slide-in or drop-in.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term is amended to clarify that the term “mixed transaction contract” applies to real property transactions and does not apply to repair, maintenance, and installation services for tangible personal property. As amended, the term is defined as “[a] contract that includes both a real property contract for a capital improvement and a repair, maintenance, and installation service for real property that is not related to the capital improvement.”

(Effective retroactively to January 1, 2017, unless an amendment increases a sales and use tax liability, then the change is effective June 12, 2018; SB 99, s. 38.5.(a), S.L. 2018-5.)

The definition of the term “mixed transaction contract” is further amended to include the defined term “repair, maintenance, and installation services” The definition as further amended is “[a] contract that includes both a real property contract for a capital improvement and repair, maintenance, and installation services for real property that are not related to the capital improvement.” [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term as amended is “[t]he gross sales or gross receipts of a retailer or another person taxed under . . . Article [5 of Chapter 105 of the North Carolina General Statutes] after deducting exempt sales and nontaxable sales.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term is added and defined as “[a] written contract to manage one or more of the activities listed in this subdivision that are related to real property used for business, educational, commercial, or income-producing purposes. The activity may include the lease or rental of the property on behalf of the owner, other than the lease or rental of an accommodation taxable under G.S. 105-164.4(a)(3).

The term does not include a contract for repair, maintenance, and installation services for real property. The activities that may be performed under a property management contract are as follows:

a. Hiring and supervising employees for the property. 
b. Providing a person to manage the property. 
c. Receiving and applying revenues received from tenants of the property. 
d. Arranging for services from third parties in order to comply with the landlord's obligations under a lease or rental agreement or to comply with facility-related needs of the property's occupants. The activity may include supplemental repair, maintenance, and installation services to complement taxable services provided by third-party vendors if no additional fee is imposed under the contract for that supplemental service. 
e. Incurring and paying expenses derived from the operation of the real property. 
f. Handling administrative affairs for the real property.

(Effective January 1, 2020; SB 99, s. 38.5.(x), S.L. 2018-5.)

Language is added regarding certain requirements for datacenters to address the fact that often there are no jobs at the time of application to the Secretary of Commerce for a written determination and therefore, no wages are being paid and no health insurance is being provided. As amended, the definition of the term “qualifying datacenter” is “[a] datacenter that satisfies each of the following conditions:

a. The datacenter certifies that it satisfies or will satisfy the wage standard for the development tier area or zone in which the datacenter is located. There is no wage standard for a development tier one area. If an urban progress zone or an agrarian growth zone is not in a development tier one area, then the wage standard for that zone is an average weekly wage that is at least equal to ninety percent (90%) of the lesser of the average wage for all insured private employers in the state and the average wage for all insured private employers in the county in which the datacenter is located. The wage standard for a development tier two area or a development tier three area is an average weekly wage that is at least equal to one hundred ten percent (110%) of the lesser of the average wage for all insured private employers in the state and ninety percent (90%) of the average wage for all insured private employers in the county in which the datacenter is located. 
b. The Secretary of Commerce has made a written determination that at least seventy-five million dollars ($75,000,000) in private funds has been or will be invested by one or more owners, users, or tenants of the datacenter within five years of the date the owner, user, or tenant of the datacenter makes its first real or tangible property investment in the datacenter on or after January 1, 2012. Investments in real or tangible property in the datacenter made prior to January 1, 2012, may not be included in the investment required by this subdivision. 
c. The datacenter certifies that it provides or will provide health insurance for all of its full-time employees as long as the datacenter operates. The datacenter provides health insurance if it pays or will pay at least fifty percent (50%) of the premiums for health care coverage that equals or exceeds the minimum provisions of the basic health care plan of coverage recommended by the Small Employer Carrier Committee pursuant to G.S. 58-50-125.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

This term was previously codified as G.S. 105-164.3(30b).

(Effective January 1, 2020; SB 99, s. 38.5.(x), S.L. 2018-5.)

The definition of the term is amended to include the defined term “repair, maintenance, and installation services.” The term as amended is “[a] transaction comprised of multiple services performed by one or more persons to restore, improve, alter, or update real property that may otherwise be subject to tax as repair, maintenance, and installation services if separately performed. The term includes a transaction where the internal structure or design of one or more rooms or areas within a room or building are substantially changed. The term does not include a single service that is included in repair, maintenance, and installation services.

The term does not include a transaction where the true purpose is repair, maintenance, and installation services no matter that another service included in repair, maintenance, and installation services is performed that is incidental to the true purpose of the transaction; examples include repair of sheetrock that includes applying paint, replacement of cabinets that includes installation of caulk or molding, and the installation of hardwood floors that includes installation of shoe molding.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term is amended to separate services applicable to motor vehicles into one subdivision and to change “repair, maintenance, and installation service” to “repair, maintenance, and installation services” throughout the definition. The definition of the term “repair, maintenance, and installation services” as amended “includes the activities listed in this subdivision and applies to tangible personal property, motor vehicle, digital property, and real property. The term does not include services used to fulfill a real property contract taxed in accordance with G.S. 105-164.4H:
. . . 
d. To install, apply, connect, adjust, or set into position tangible personal property or digital property. The term includes floor refinishing and the installation of carpet, flooring, floor coverings, windows, doors, cabinets, countertops, and other installations where the item being installed may replace a similar existing item. The replacement of more than one of a like-kind item, such as replacing one or more windows, is repair, maintenance, and installation services. The term does not include an installation defined as a capital improvement under subdivision (2c)d. of this section and substantiated as a capital improvement under G.S. 105- 164.4H(a1). [Emphasis added.]
e. To inspect or monitor property or install, apply, or connect tangible personal property or digital property on a motor vehicle or adjust a motor vehicle.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term as amended is “[t]he transfer for consideration of title, license to use or consume, or possession of tangible personal property or digital property or the performance for consideration of a service. The transfer or performance may be conditional or in any manner or by any means. The term applies to the following:

a. Fabrication of tangible personal property for consumers by persons engaged in business who furnish either directly or indirectly the materials used in the fabrication work. 
b. Furnishing or preparing tangible personal property consumed on the premises of the person furnishing or preparing the property or consumed at the place at which the property is furnished or prepared. 
c. A transaction in which the possession of the property is transferred but the seller retains title or security for the payment of the consideration. 
d. A lease or rental. 
e. Transfer of a digital code. 
f. An accommodation.
g. A service contract. 
h. Any other item subject to tax under . . . Article [5 of Chapter 105 of the North Carolina General Statutes].”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of the term is amended to clarify that a credit allowed for trade-in does not reduce the sales price of the item purchased. As amended, the definition of the term “sales price” is, in part, “[t]he total amount or consideration for which tangible personal property, digital property, or services are sold, leased, or rented. The consideration may be in the form of cash, credit, property, or services. The sales price must be valued in money, regardless of whether it is received in money.

a. The term includes all of the following: 
… 
 

7. Credit for trade-in. The amount of any credit for trade-in is not a reduction of the sales price. 
8. The amount of any discounts that are reimbursable by a third party and can be determined at the time of sale through any of the following: 
   I. Presentation by the consumer of a coupon or other documentation. 
   II. Identification of the consumer as a member of a group eligible for a discount. 
   III. The invoice the retailer gives the consumer.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

This term is added and is defined as “[a] person that gathers and obtains ferrous metals, nonferrous metals, and items that have served their original economic purpose and that converts them by processes, including sorting, cutting, classifying, cleaning, baling, wrapping, shredding, or shearing into a new or different product for sale consisting of prepared grades.”

(Effective July 1, 2018, and applies to sales on or after that date; SB 257, s. 38.8.(d), S.L. 2017-57.)

The definition of the term is amended to include the defined term “repair, maintenance, and installation services.” The definition as amended is “[a] contract where the obligor under the contract agrees to maintain, monitor, inspect, repair, or provide another service included in the definition of repair, maintenance, and installation services to digital property, tangible personal property, or real property for a period of time or some other defined measure. The term does not include a single service included in repair, maintenance, or installation services, but does include a contract where the obligor may provide a service included in the definition of repair, maintenance, and installation services as a condition of the contract. The term includes a service contract for a pool, fish tank, or similar aquatic feature and a home warranty.

Examples include a warranty agreement other than a manufacturer's warranty or dealer's warranty provided at no charge to the purchaser, an extended warranty agreement, a maintenance agreement, a repair agreement, or a similar agreement or contract.” Emphasis added.

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The reference date to the Streamlined Agreement is updated to the most recent version. As amended, the definition of the term is “[t]he Streamlined Sales and Use Tax Agreement as amended as of May 3, 2018.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The definition of “use” is amended to remove a cross-reference that is no longer applicable on or after January 1, 2017 as a result of the removal of the statutory exclusion from the definition of “storage.” The definition of the term as amended is “[t]he exercise of any right, power, or dominion whatsoever over tangible personal property, digital property, or a service by the purchaser of the property or service. The term includes withdrawal from storage, distribution, installation, affixation to real or personal property, and exhaustion or consumption of the property or service by the owner or purchaser. The term does not include a sale of tangible personal property, digital property, or a service in the regular course of business.”

(Effective June 12, 2018; SB 99, s. 38.5.(b), S.L. 2018-5.)

The following subdivisions are amended to merge the imposition of sales and use tax on repair, maintenance, and installation services with the taxation of the appropriate levies on tangible personal property, digital property, and services. This change alleviates the necessity of determining whether the imposition is on the sale and installation of an item or on the sale of repair, maintenance, and installation services. The taxation of the installation is the same, regardless of how it is classified. This change removes any distinction that may have existed.

This subdivision is amended to provide “[t]he general rate of tax applies to the sales price of each item or article of tangible personal property that is sold at retail and is not subject to tax under another subdivision in this section. A sale of a freestanding appliance is a retail sale of tangible personal property. This subdivision applies to the sales price of or gross receipts derived from repair, maintenance, and installation services to tangible personal property. This subdivision does not apply to repair, maintenance, and installation services for real property; these services are taxable under subdivision (16) of this subsection.” [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(c), S.L. 2018-5.)

This subdivision is amended to provide that “[t]he general rate applies to the sales price of each of the following items sold at retail, including all accessories attached to the item when it is delivered to the purchaser, and to the sales price of or the gross receipts derived from repair, maintenance, and installation services for each of the following items. The items taxable under this subdivision are as follows:

a. A manufactured home. 
b. A modular home. The sale of a modular home to a modular homebuilder is considered a retail sale, no matter that the modular home may be used to fulfill a real property contract. A person who sells a modular home at retail is allowed a credit against the tax imposed by this subdivision for sales or use tax paid to another state on tangible personal property incorporated in the modular home. The retail sale of a modular home occurs when a modular home manufacturer sells a modular home to a modular homebuilder or directly to the end user of the modular home. 
c. An aircraft. The maximum tax is two thousand five hundred dollars ($2,500) per article. The maximum tax does not apply to the sales price of or gross receipts derived from repair, maintenance, and installation services, but the use tax exemption in G.S. 105-164.27A(a3) may apply to these services. 
d. A qualified jet engine.” [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(c), S.L. 2018-5.)

This subdivision is amended to provide that “[t]he rate of three percent (3%) applies to the sales price of each boat sold at retail, including all accessories attached to the boat when it is delivered to the purchaser. The maximum tax is one thousand five hundred dollars ($1,500) per article. The maximum tax does not apply to the sales price of or gross receipts derived from the sales price of or gross receipts derived from repair, maintenance, and installation services, but the use tax exemption in G.S. 105-164.27A(a3) may apply to these services.” [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(c), S.L. 2018-5.)

This subdivision is amended, in part, to provide that “[the] general rate applies to the sales price of digital property that is sold at retail and that is listed in this subdivision, is delivered or accessed electronically, is not considered tangible personal property, and would be taxable under . . . Article [5 of Chapter 105 of the North Carolina General Statutes] if sold in a tangible medium. The tax applies regardless of whether the purchaser of the item has a right to use it permanently or to use it without making continued payments. This subdivision applies to the sales price of or gross receipts derived from repair, maintenance, and installation services to digital property.

The tax does not apply to a service that is taxed under another subdivision of this subsection or to an information service. The following property is subject to tax under this subdivision: . . .”

(Effective June 12, 2018; SB 99, s. 38.5.(c), S.L. 2018-5.)

This subdivision is amended to provide that “[t]he general rate applies to the sales price of or the gross receipts derived from repair, maintenance, and installation services for real property and generally includes any tangible personal property or digital property that becomes a part of or is applied to a purchaser's property. A mixed transaction contract and a real property contract are taxed in accordance with G.S. 105-164.4H." [Emphasis added.]

(Effective June 12, 2018; SB 99, s. 38.5.(c), S.L. 2018-5.)

This subsection is amended and provides, in part, that “[t]he following principles apply in determining where to source the sale of a product for the seller's purpose and do not alter the application of the tax imposed under G.S. 105-164.6. Except as otherwise provided in [G.S. 105-164.4B(a)], a service is sourced where the purchaser can potentially first make use of the service. These principles apply regardless of the nature of the product, except as otherwise noted in [G.S. 105-164.4B]: . . .” .

(Effective June 12, 2018; SB 99, s. 38.5.(d), S.L. 2018-5.)

This subsection is added to provide guidance regarding the sourcing of a computer software renewal. The subsection provides that “[t]he gross receipts derived from the renewal of a service contract for prewritten software is generally sourced pursuant to subdivision (a) of [G.S. 105-164.4B]. However, sourcing the renewal to an address where the purchaser received the underlying prewritten software does not constitute bad faith provided the seller has not received information from the purchaser that indicates a change in the location of the underlying software."

(Effective June 12, 2018; SB 99, s. 38.5.(d), S.L. 2018-5.)

This subsection is amended to correct a punctuation error.

(Effective June 12, 2018; SB 99, s. 38.5.(s), S.L. 2018-5.)

This subsection is amended to correct a statutory cross-reference from G.S. 105.164.4H(a) to G.S. 105.164.4H(a1).

(Effective retroactively to January 1, 2017, and applies to sales and purchases made on or after that date; SB 99, s. 38.5.(g), S.L. 2018-5)

This section is amended to include services and to change the term “taxable item” to “taxable sale.” The section as amended provides “[t]he sales tax imposed by . . .Article [5 of Chapter 105 of the North Carolina General Statutes] is intended to be passed on to the purchaser of a taxable item or service and borne by the purchaser instead of by the retailer. A retailer must collect the tax due on an item or service when sold at retail. The requirements of this section apply to facilitators liable for tax under . . . Article [5 of Chapter 105 of the North Carolina General Statutes]. The tax is a debt from the purchaser to the retailer until paid and is recoverable at law by the retailer in the same manner as other debts. A retailer is considered to act as a trustee on behalf of the state when it collects tax from the purchaser on a taxable sale. The tax must be stated and charged separately on the invoices or other documents of the retailer given to the purchaser at the time of the sale except for either of the following:

1. Vending machine sales. 
2. Where a retailer displays a statement indicating the sales price includes the tax.”

(Effective June 12, 2018; SB 99, s. 38.5.(v), S.L. 2018-5.)

This subsection is amended to include “[t]he first course of remedy available to purchasers seeking a refund of overcollected sales or use taxes from the seller are the customer refund procedures provided in . . . Chapter [105 of the North Carolina General Statutes] or otherwise provided by administrative rule, bulletin, or directive on the law issued by the Secretary. Where a person recovers tax under G.S. 105-164.11B, a refund or credit under this section is not allowed by the Secretary."

(Effective June 12, 2018; SB 99, s. 38.5.(i), S.L. 2018-5.)

This section is added and provides that “[a] retailer who pays sales and use tax on property or services and subsequently resells the property or services at retail, without the property or service being used by the retailer, may recover the sales or use tax originally paid to a seller as provided in this section. A retailer entitled to recover tax under this section may reduce taxable receipts by the taxable amount of the purchase price of the property or services resold for the period in which the retail sale occurs. A recovery of tax allowed under this section is not an overpayment of tax and, where such recovery is taken, a refund of the tax originally paid should not be requested pursuant to the authority under G.S. 105- 164.11. Any amount for tax recovered under this section in excess of tax due for a reporting period under . . . Article [5 of Chapter 105 of the North Carolina General Statutes] is not subject to refund. Any tax recovered under this section may be carried forward to a subsequent reporting period and taken as an adjustment to taxable receipts. The records of the retailer must clearly reflect and support the adjustment to taxable receipts for the period in which the adjustment is made." [Emphasis added].

(Effective June 12, 2018; SB 99, s. 38.5.(h), S.L. 2018-5.)

The following exceptions are either amended or added as noted below:

This subdivision is amended and provides an exception for “[a]n amount paid solely for the right to participate, other than to be a spectator, in sporting activities. Examples of these types of charges include bowling fees, golf green fees, and gym memberships.”

(Effective June 12, 2018; SB 99, s. 38.5.(e), S.L. 2018-5.)

This subdivision is added to provide an exception for “[a]n amount paid for the right to participate, other than to be a spectator, in the following activities: 

a. Rock climbing, skating, skiing, snowboarding, sledding, zip lining, or other similar activities. 
b. Instruction classes related to the items included in sub-subdivision a. of this subdivision. 
c. Riding on a carriage, boat, train, plane, horse, chairlift, or other similar rides. 
d. Amusement rides, including a waterslide."

(Effective June 12, 2018; SB 99, s. 38.5.(e), S.L. 2018-5.)

The following exemptions are amended as noted below:

This subdivision is amended to provide an exemption for “[t]he portion of a membership charge that is deductible as a charitable contribution under section 170 of the Code or that is described in section 170(l)(2) of the Code.”

(Effective June 12, 2018; SB 99, s. 38.5.(u), S.L. 2018-5.)

This subdivision is amended to provide an exemption for “[a] donation that is deductible as a charitable contribution under section 170 of the Code or that is described in section 170(I)(2) of the Code.”

(Effective June 12, 2018; SB 99, s. 38.5.(u), S.L. 2018-5.)

This subsection is repealed and is incorporated into G.S. 105-164.13(61a)(p).

(Effective June 12, 2018; SB 99, s. 38.5.(f), S.L. 2018-5.)

This subdivision is repealed in conjunction with the repeal of Article 5F, Certain Machinery and Equipment, of Chapter 105 of the North Carolina General Statutes. A service contract, for an item (such as mill machinery) that is currently exempt from sales and use taxes, will remain exempt from tax on or after the date of repeal unless other legislation is signed into law.

(Effective July 1, 2018, and applies to sales on or after that date; SB 257, s. 38.8.(b), S.L. 2017-57.)

The 2017 and 2018 General Assembly repealed, added, and enacted clarifying changes to the exemptions from sales and use tax. The changes and their effective dates are as follows:

This exemption is repealed simultaneously with the repeal of Article 5F, Certain Machinery and Equipment, of Chapter 105 of the North Carolina General Statutes. See below for subdivisions (5e) through (5n) for additional pertinent information.

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(a), S.L. 2017-57.)

This subdivision is added and provides an exemption for “[s]ales of mill machinery or mill machinery parts or accessories to any of the following: 

a. A manufacturing industry or plant. A manufacturing industry or plant does not include (i) a delicatessen, cafe, cafeteria, restaurant, or another similar retailer that is principally engaged in the retail sale of foods prepared by it for consumption on or off its premises or (ii) a production company. 
b. A contractor or subcontractor if the purchase is for use in the performance of a contract with a manufacturing industry or plant. 
c. A subcontractor if the purchase is for use in the performance of a contract with a general contractor that has a contract with a manufacturing industry or plant.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is amended to provide that the term “accessories” does not include electricity. This subdivision provides an exemption for “[s]ales of mill machinery or mill machinery parts or accessories to any of 31 the persons listed in this subdivision. For purposes of this subdivision, the term ‘accessories’ does not include electricity. The persons are: . . . .”

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

This subdivision is added and provides an exemption for “[s]ales to a major recycling facility of any of the following tangible personal property for use in connection with the facility: 

a. Cranes, structural steel crane support systems, and foundations related to the cranes and support systems. 
b. Port and dock facilities. 
c. Rail equipment. 
d. Material handling equipment.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of equipment, or an attachment or repair part for equipment, that meets all of the following requirements:

a. Is sold to a company primarily engaged at the establishment in research and development activities in the physical, engineering, and life sciences included in industry group 54171 of NAICS. 
b. Is capitalized by the company for tax purposes under the Code. 
c. Is used by the company at the establishment in the research and development of tangible personal property.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of equipment, or an attachment or repair part for equipment, that meets all of the following requirements:

a. Is sold to a company primarily engaged at the establishment in software publishing activities included in industry group 5112 of NAICS
b. Is capitalized by the company for tax purposes under the Code. 
c. Is used by the company at the establishment in the research and development of tangible personal property.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of equipment, or an attachment or repair part for equipment, that meets all of the following requirements:

a. Is sold to a company primarily engaged at the establishment in industrial machinery refurbishing activities included in industry group 811310 of NAICS. 
b. Is capitalized by the company for tax purposes under the Code. 
c. Is used by the company at the establishment in repairing or refurbishing tangible personal property.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of the following to a company located at a ports facility for waterborne commerce: 

a. Machinery and equipment that is used at the facility to unload or to facilitate the unloading or processing of bulk cargo to make it suitable for delivery to and use by manufacturing facilities. 
b. Parts, accessories, or attachments used to maintain, repair, replace, upgrade, improve, or otherwise modify such machinery and equipment.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date, such qualifying items were exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of the following to a secondary metals recycler: 

a. Equipment, or an attachment or repair part for equipment, that (i) is capitalized by the person for tax purposes under the Code, (ii) is used by the person in the secondary metals recycling process, and (iii) is not a motor vehicle or an attachment or repair part for a motor vehicle. 
b. Fuel, piped natural gas, or electricity for use at the person's facility at which the primary activity is secondary metals recycling.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to this date with exceptions, certain qualifying items purchased by certain metal recyclers may be exempt from sales and use taxes under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of equipment, or an attachment or repair part for equipment, that meets all of the following requirements:

a. Is sold to a company primarily engaged at the establishment in processing tangible personal property for the purpose of extracting precious metals, as defined in G.S. 66-406, to determine the value for potential purchase. 
b. Is capitalized by the company for tax purposes under the Code. 
c. Is used by the company in the process described in this subdivision.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Purchases of such qualifying items on or after July 1, 2016 and prior to July 1, 2018, were exempt from sales and use tax under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This subdivision is added and provides an exemption for “[s]ales of equipment, or an attachment or repair part for equipment, that meets all of the following requirements:

a. Is sold to a company that is engaged in the fabrication of metal work and that has annual gross receipts, including the gross receipts of all related persons, as defined in G.S. 105-163.010, from the fabrication of metal work of at least eight million dollars ($8,000,000). 
b. Is capitalized by the company for tax purposes under the Code. 
c. Is used by the company at the establishment in the fabrication or manufacture of metal products or used by the company to create equipment for the fabrication or manufacture of metal products.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57.)

This subdivision is added and provides an exemption for “[s]ales of repair or replacement parts for a ready-mix concrete mill, regardless of whether the mill is freestanding or affixed to a motor vehicle, to a company that primarily sells ready-mix concrete.”

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(c), S.L. 2017-57. Prior to the effective date, purchases of such to repair a concrete mill mounted on a motor vehicle after the date the concrete mill is mounted, are not exempt from tax under G.S. 105-164.13(5a), which is repealed simultaneously with the effective date of this exemption.)

This sub-subdivision is amended to correct the term “for-hire boat” to “for-hire vessel” as defined by G.S. 113-174.

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

This subdivision is amended and provides an exemption for “[a]ll of the drugs listed in this subdivision, including their packaging materials and any instructions or information about the drugs included in the package with them. This subdivision does not apply to pet food or feed for animals. The drugs exempt under this subdivision are as follows: 

a. Drugs required by federal law to be dispensed only on prescription. 
b. Over-the-counter drugs sold on prescription. This sub-subdivision does not apply to purchases of over-the-counter drugs by hospitals and other medical facilities for use and treatment of patients. 
c. Insulin.”

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

This subdivision is amended and provides an exemption for “[a]ccounts of purchasers, representing taxable sales, on which the tax imposed by . . . Article [5 of Chapter 105 of the North Carolina General Statutes] has been paid, that are found to be worthless and actually charged off for income tax purposes may, at corresponding periods, be deducted from gross sales. In the case of a municipality that sells electricity, the account may be deducted if it meets all the conditions for charge-off that would apply if the municipality were subject to income tax. Any accounts deducted pursuant to this subdivision must be added to gross sales if afterwards collected. For purposes of this exemption, a worthless account of a purchaser is a ‘bad debt’ as allowed under section 166 of the Code. The amount calculated pursuant to section 166 of the Code must be adjusted to exclude financing charges or interest, sales or use taxes charged on the sales price, uncollectible amounts on property that remains in the possession of the seller until the full purchase price is paid, expenses incurred in attempting to collect any debt, and repossessed property.”

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

This exemption is repealed. See new exemption G.S. 105-164.13(5k).

(Effective July 1, 2018, and applies to sales made on or after that date; SB 257, s. 38.8.(a), S.L. 2017-57. Effective October 8, 2017, and applies retroactively to sales made on or after July 1, 2017; SB 582, s. 7.2.(a), S.L. 2017-212.)

This subdivision is amended, in part, and provides the following exemptions: “[t]he sales price of or the 35 gross receipts derived from the repair, maintenance, and installation services and service contracts listed in this subdivision are exempt from tax. Except as otherwise provided in this subdivision, property and services used to fulfill either a repair, maintenance, or installation service or a service contract exempt from tax under this subdivision are taxable. The list of repair, maintenance, and installation services and service contracts exempt from tax under this subdivision is as follows:

a. A service and a service contract for an item exempt from tax under . . . Article [5 of Chapter 105 of the General Statutes], except as otherwise provided in this subdivision. Property and services used to fulfill a service or service contract exempt under this sub-subdivision are exempt from tax under . . . Article [5 of Chapter 105 of the North Carolina General Statutes]. This exemption does not apply to water for a pool, fish tank, or similar aquatic feature or to a motor vehicle, except as provided under subdivision (62a) of this section and fees under sub-subdivision b. of this subdivision.
 . . . 
p. A security or similar monitoring contract for real property. The exemption provided in this subdivision does not apply to charges for repair, maintenance, and installation services to repair security, alarm, and other similar monitoring systems for real property. 
q. A contract to provide a certified operator for a wastewater system.”

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

This subdivision is also expanded by adding the following to the exemption: “[t]he sales price of or the gross receipts derived from the repair, maintenance, and installation services and service contracts listed in this subdivision are exempt from tax. Except as otherwise provided in this subdivision, property and services used to fulfill either a repair, maintenance, or installation service or a service contract exempt from tax under this subdivision are taxable. The list of repair, maintenance, and installation services and service contracts exempt from tax under this subdivision is as follows:
. . . 
m. Any of the following: 

1. A qualified aircraft.
2. A qualified jet engine. 
3. An aircraft with a gross take-off weight of more than 2,000 pounds.”

(Effective July 1, 2019, and applies to sales made on or after that date; SB 628, s. 2.12.(a), S.L. 2017-204.)

This subdivision is also expanded by adding the following to the exemption: “[t]he sales price of or the gross receipts derived from the repair, maintenance, and installation services and service contracts listed in this subdivision are exempt from tax. Except as otherwise provided in this subdivision, property and services used to fulfill either a repair, maintenance, or installation service or a service contract exempt from tax under this subdivision are 36 taxable. The list of repair, maintenance, and installation services and service contracts exempt from tax under this subdivision is as follows: 
. . . 
p. A property management contract."

(Effective January 1, 2020; SB 99, s. 38.5(y), S.L. 2018-5.)

This subdivision is added and provides the following exemption: “[g]ross receipts derived from a rental of an accommodation are exempt as provided in G.S. 105-164.4F.”

(Effective June 12, 2018; SB 99, s. 38.5.(j), S.L. 2018-5.)

The following subsections are either amended or added as follows:

This subsection is amended to include a person who boards horses. This section as amended provides that “[a] qualifying farmer is a person who has an annual income from farming operations for the preceding taxable year of ten thousand dollars ($10,000) or more or who has an average annual income from farming operations for the three preceding taxable years of ten thousand dollars ($10,000) or more. For purposes of this section, the term ‘income from farming operations’ means sales plus any other amounts treated as gross income under the Code from farming operations. A qualifying farmer includes a dairy operator, a poultry farmer, an egg producer, and a livestock farmer, a farmer of crops, a farmer of an aquatic species, as defined in G.S. 106-758, and a person who boards horses. A qualifying farmer may apply to the Secretary for an exemption certificate number under G.S. 105-164.28A. The exemption certificate expires when a person fails to meet the income threshold for three consecutive taxable years or ceases to engage in farming operations, whichever comes first.

Except as otherwise provided in this section, the items exempt under this section must be purchased by a qualifying farmer and used by the farmer in farming operations. For purposes of this section, an item is used by a farmer for farming operations if it is used for the planting, cultivating, harvesting, or curing of farm crops or in the production of dairy products, eggs, or animals. The following tangible personal property and services that may be exempt from sales and use tax under this section are as follows: . . .”

(Effective retroactively to July 1, 2014. A person who paid sales and use tax for the period July 1, 2014 and ending prior to June 12, 2018 on an item exempt from sales and use tax pursuant to G.S. 105-164.13E, as amended, may apply to the Department of Revenue for a refund of any excess tax paid to the extent the refund is the result of the change in G.S. 105-164.13E. A request for a refund must be made on or before October 1, 2018. Notwithstanding G.S 105- 241.6, a request for a refund received after this date is barred and the provisions of G.S. 105- 164.11 do not apply. SB 99, s. 38.5.(k), S.L. 2018-5.)

This subsection is added and provides that “[a] qualifying item listed in G.S. 105-164.13E(a)(6) . . . purchased to fulfill a service for a person who holds a qualifying farmer exemption certificate or a conditional farmer exemption certificate issued under G.S. 105-164.28A is exempt from sales and use tax to the same extent as if purchased directly by the person who holds the exemption certificate. A person that purchases one of the items allowed an exemption under this subsection must provide an exemption certificate to the retailer that includes the name of the purchaser and an exemption number issued to the purchaser by the Department pursuant to G.S. 105- 164.28A. A person that purchases an item exempt from tax pursuant to this subsection must maintain records to substantiate that an item is used to provide a service for a person who holds a qualifying farmer exemption certificate or a conditional farmer exemption certificate.”

(Effective retroactively to July 1, 2014. A person who paid sales and use tax for the period July 1, 2014 and ending prior to June 12, 2018 on an item exempt from sales and use tax pursuant to G.S. 105-164.13E, as amended, may apply to the Department of Revenue for a refund of any excess tax paid to the extent the refund is the result of the change in G.S. 105-164.13E. A request for a refund must be made on or before October 1, 2018. Notwithstanding G.S 105- 241.6, a request for a refund received after this date is barred and the provisions of G.S. 105- 164.11 do not apply. SB 99, s. 38.5.(k), S.L. 2018-5.)

This section is amended and provides additional and extended relief from sales and use taxes due to the expansion of the sales tax base. The following explains the protections provided by the Act.

“(a) Grace Period – The Department shall take no action to assess any tax due for a filing period beginning on or after March 1, 2016, and ending prior to January 1, 2019, if one or more of the conditions of this subsection apply and the retailer did not receive specific written advice from the Secretary for the transactions at issue for the laws in effect for the applicable periods. Except as otherwise 40 provided, this subsection also applies to use tax liability imposed on a purchaser under G.S. 105-164.6. The conditions are as follows:

(1) A retailer failed to charge sales tax due on separately stated installation charges that are part of the sales price of tangible personal property or digital property sold at retail. 
(2) A person failed to properly classify themselves as a retailer in retail trade for the period beginning March 1, 2016, and ending December 31, 2016, and did not charge sales tax on all retail transactions but rather treated some transactions as real property contracts in error for sales and use tax purposes. This subdivision does not prohibit the Secretary from assessing use tax on purchases used to fulfill a transaction erroneously treated as a real property contract. 
(3) A person treated a transaction as a real property contract in error and did not collect sales tax on the transaction as a retail sale. This subdivision does not prohibit the Secretary from assessing use tax on purchases used to fulfill a transaction erroneously treated as a real property contract. 
(4) A person failed to collect sales tax on the sales price of a service contract for one or more components, systems, or accessories for a motor vehicle on or after March 1, 2016, and prior to January 1, 2017, where the contract was sold by a motor vehicle dealer, a motor vehicle service agreement company, or a motor vehicle dealer on behalf of a motor vehicle service agreement company. 
(5) A person failed to collect sales tax on the retail sale of a service contract for tangible personal property that becomes a part of or is affixed to real property. 
(6) A person failed to collect sales tax on the retail sale of a service contract for a pool, a fish tank, or similar aquatic feature on or after January 1, 2017, and prior to January 1, 2019, provided the person paid tax on any purchases used to fulfill the service contract. 
(7) A person failed to collect sales tax on the sales price of or the gross receipts derived from the retail sale of a home warranty on or after January 1, 2017, and prior to January 1, 2019, provided the warranty includes coverage for real property. 
(8) A person failed to collect sales tax on the taxable portion of a mixed service contract that exceeds ten percent (10%) for a transaction on or after January 1, 2017, and prior to January 1, 2019. This subdivision does not prohibit the Secretary from assessing use tax on purchases used to fulfill a mixed contract. 
(8a) A person failed to collect sales tax on the taxable portion of a mixed transaction contract that exceeds twenty-five percent (25%) for a transaction on or after January 1, 2017, and prior to January 1, 2019. This subdivision does not prohibit the Secretary from assessing use tax on purchases used to fulfill a mixed transaction contract. 
(8b) A person failed to collect sales tax on the taxable portion of a bundled transaction that included a contract for two more services, one of which was subject to tax and one of which was not subject to tax, for a transaction on or after March 1, 2016, and prior to January 1, 2017. 
(9) A person treats a transaction as a real property contract for remodeling instead of the retail sale of repair, maintenance, and installation services sold at retail prior to January 1, 2019. This subdivision does not prohibit the Secretary from assessing use tax on purchases used to fulfill the transaction. 
(10) A person failed to collect sales tax on repair, maintenance, and installation services for tangible personal property, motor vehicles, and digital property. [Emphasis added]

(b) Limitations. – This section does not prohibit the following assessments: 

(1) The assessment of tax collected by a person and not remitted to the Department. 
(2) The assessment of tax due on an amount included in the definition of sales price where a retailer failed to charge or remit the tax, except as allowed under subsection (a) of this section. 
(3) The assessment of use tax on purchases as provided in subsection (a) of this section.”

(Subsection (a) of this section becomes effective retroactively to January 1, 2017, and expires on July 1, 2018; SB 628, s. 2.12.(a); S.L. 2017-204. Effective June 12, 2018; S.B. 99, s. 38.5.(q), S.L. 2018-5 amends subsection (a) and sub-subsections (6), (7), (8) and (9), and adds sub-subsections (8a), (8b) and (10).)

This section is amended to modernize and conform the language to the provisions of Article 5 of Chapter 105 of the North Carolina General Statutes. Additionally, superfluous language is deleted.

(Effective June 12, 2018; SB 99, s. 38.5.(w), S.L. 2018-5.)