Service Contracts

What Sales and Use Tax is Due?

The sales price of or the gross receipts derived from a service contract or the renewal of a service contract sold at retail is subject to the general state and applicable local and transit rates of sales and use tax. The retailer of a service contract is required to collect the tax at the time of the retail sale of the contract and is liable for payment of the tax. A service contract is sourced in accordance with the sourcing principles set forth in G.S. § 105-164.4B. 

What is a Service Contract?

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 certain digital property, tangible personal property, or real property for a period of time or some other defined measure.

The term includes the following:

• 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.
• A service contract for a pool, fish tank, or similar aquatic feature.
• A home warranty.

The term does not include a single service included in the definition of "repair, maintenance, or installation services."

Examples of a Service Contract

• 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.

How to File and Pay?

Gross receipts derived from a service contract or the renewal of a service contract and the sales and use tax thereon are to be reported to the Department on Form E-500, Sales and Use Tax Return, or through the Department’s online filing and payment system.

File and pay now

How Do I Find More Resources?

Sales and Use Tax Bulletin 79 - Service Contracts and Warranties, provides additional information on the following:

• Relevant definitions.
• Exemptions for service contracts.
• The application of tax for items purchased to fulfill a service contract.
• The application of tax to a mixed service contract.
• Certain refund claim procedures.
• Motor vehicle service contracts.
• Property management contracts.
• Manufacturer and dealer warranties.