North Carolina § 105-164 - 4I. Service contracts.

§ 105-164. 4I. Service contracts.

Tax. - 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 rate of tax set in G.S. 105-164.4 and is sourced in accordance with the sourcing principles in G.S. 105-164.4B. The retailer of a service contract is required to collect the tax due at the time of the retail sale of the contract and is liable for payment of the tax. The tax is due and payable in accordance with G.S. 105-164.16. When a service contract is sold at retail to a purchaser by the obligor under the contract, the obligor is the retailer. When a service contract is sold at retail to a purchaser by a service contract facilitator on behalf of the obligor under the contract, the service contract facilitator is the retailer unless the provisions of subdivision (3) of this subsection apply. When a service contract is sold at retail to a purchaser by a service contract facilitator on behalf of the obligor under the contract and there is an agreement between the service contract facilitator and the obligor that states the obligor will be liable for the payment of the tax, the obligor is the retailer. The service contract facilitator must send the retailer the tax due on the sales price of or gross receipts derived from the service contract no later than 10 days after the end of each calendar month. A service contract facilitator that does not send the retailer the tax due on the sales price or gross receipts is liable for the amount of tax the service contract facilitator fails to send. A service contract facilitator is not liable for tax sent to a retailer but not remitted by the retailer to the Secretary. Tax payments received by a retailer from a service contract facilitator are held in trust by the retailer for remittance to the Secretary. A retailer that receives a tax payment from a service contract facilitator must remit the amount received to the Secretary. A retailer is not liable for tax due but not received from a service contract facilitator. The requirements imposed by this subdivision on a retailer and a service contract facilitator are considered terms of the agreement between the retailer and the service contract facilitator. Mixed Service Contract. - A service contract for real property that includes two or more services, one of which is subject to tax under this Article and one of which is not subject to tax under this Article, is taxable in accordance with this subsection. Tax applies to the sales price of or gross receipts derived from a mixed service contract unless one of the following applies: Allocation. - The person determines an allocated price for the taxable portion of the service contract based on a reasonable allocation of revenue that is supported by the person's business records kept in the ordinary course of business. In this circumstance, tax applies to the allocated price of the taxable portion of the service contract. Ten percent (10%) test. - The allocated price of the taxable portion of the service contract does not exceed ten percent (10%) of the price of the contract. Repealed by Session Laws 2017-204, s. 2.5(a). For effective date and applicability, see editor's note. Repealed by Session Laws 2018-5, s. 38.5(f), effective June 12, 2018. Basis of Reporting. - A retailer who sells or derives gross receipts from a service contract must report those sales on an accrual basis of accounting, notwithstanding that the retailer reports tax on the cash basis for other sales at retail. The tax on the sales price of or the gross receipts derived from a service contract is due at the time of the retail sale, notwithstanding any portion that may be financed. If the sales price of or the gross receipts derived from the service contract is financed in whole or in part, the financed amount of the sales price of or the gross receipts derived from the service contract included in each payment is exempt from sales tax if the amount is separately stated in the contract and on the billing statement or other documentation provided to the purchaser at the time of the sale. Repealed by Session Laws 2019-246, s. 4(k), effective February 1, 2020, and applicable to sales occurring on or after that date. The retailer of a service contract is the applicable person listed below: History (2014-3, s. 6.1(c); 2015-241, s. 32.18(c); 2015-259, ss. 4.2(c), 5(a), 6(c); 2016-5, s. 3.24(a); 2016-94, s. 38.5(h); 2017-57, s. 38.8(b); 2017-204, s. 2.5(a), (b); 2018-5, s. 38.5(f); 2019-246, s. 4(k).) Editor's Note. - Session Laws 2014-3, s. 6.1(j), made this section effective October 1, 2014, and applicable to gross receipts derived from a service contract sold at retail on or after that date. Session Laws 2015-241, s. 32.18(h), made the amendment to subsection (c) of this section by Session Laws 2015-241, s. 32.18(c), applicable to sales occurring on or after March 1, 2016 and to gross receipts derived from repair, maintenance, and installation services provided on or after March 1, 2016. Session Laws 2015-241, s. 1.1, provides: "This act shall be known as 'The Current Operations and Capital Improvements Appropriations Act of 2015.'" Session Laws 2015-241, s. 33.6, is a severability clause. Session Laws 2015-259, s. 4.2(g), provides: "This Part becomes effective October 1, 2015, and applies to sales made on or after that date." Session Laws 2015-259, s. 5(f), provides: "This section becomes effective March 1, 2016, and applies to service contracts purchased on or after date, if House Bill 97 of the 2015 Regular Session of the General Assembly is enacted." House Bill 97 was enacted as Session Laws 2015-241. Session Laws 2015-259, s. 6(e) made the amendment to subdivision (b)(3) by Session Laws 2015-259, s. 6(c), applicable retroactively to service contracts purchased on or after January 1, 2014. Session Laws 2016-5, s. 3.24(b), made the amendment to subdivision (b)(3) of this section by Session Laws 2016-5, s. 3.24(a), applicable retroactively to January 1, 2014. Session Laws 2016-94, s. 38.5(a), provides: "A retailer is not liable for an undercollection of sales or use tax as a result of the changes made under Section 32.18 of S.L. 2015-241 and under Part V of S.L. 2015-259 if the retailer made a good-faith effort to comply with the law and collect the proper amount of tax. This applies only to the period beginning March 1, 2016, and ending December 31, 2016." Session Laws 2016-94, s. 38.5( l ), provides: "The Department of Revenue must issue written guidance on the implementation of the sales tax changes imposed by this act by November 15, 2016." Session Laws 2016-94, s. 38.5(q) made the amendments to this section by Session Laws 2016-94, s. 38.5(h) applicable to sales made on or after January 1, 2017. Session Laws 2016-94, s. 1.2, provides: "This act shall be known as the 'Current Operations and Capital Improvements Appropriations Act of 2016.'" Session Laws 2016-94, s. 39.4, provides: "Except for statutory changes or other provisions that clearly indicate an intention to have effects beyond the 2016-2017 fiscal year, the textual provisions of this act apply only to funds appropriated for, and activities occurring during, the 2016-2017 fiscal year." Session Laws 2016-94, s. 39.7, is a severability clause. Session Laws 2017-57 s. 38.8(b), repealed subdivision (b)(4), effective July 1, 2018. However, before that delayed repeal could go into effect, Session Laws 2017-204, s. 2.5(a), repealed subsection (b) in its entirety, effective retroactively to January 1, 2017. Session Laws 2017-57, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2017.'" Session Laws 2017-57, s. 39.6, is a severability clause. Session Laws 2017-204, s. 2.13, provides: "Except as otherwise provided, Sections 2.1 through 2.8 of this part become effective retroactively to January 1, 2017, and apply to sales and purchases made on or after that date. Any amendments made in Sections 2.1 through 2.8 of this part that increase sales or use tax liability are effective when this act becomes law. The remainder of this part is effective when it becomes law. Session Laws 2017-204, s. 7.1, is a severability clause. Session Laws 2018-5, s. 1.1, provides: "This act shall be known as the 'Current Operations Appropriations Act of 2018.'" Session Laws 2018-5, s. 39.7, is a severability clause. Session Laws 2019-246, s. 4(q), made the amendment of this section by Session Laws 2019-246, s. 4(k), effective February 1, 2020, and applicable to sales occurring on or after that date. Session Laws 2019-246, s. 4(n), provides: "There is no obligation to collect the sales and use tax required by this section retroactively." Session Laws 2019-246, s. 4(o), is a severability clause. Effect of Amendments. - Session Laws 2015-241, s. 32.18(c), effective March 1, 2016, rewrote subsection (c). For applicability, see editor's note. Session Laws 2015-259, s. 4.2(c), added subdivision (b)(5). For effective date and applicablity, see Editor's note. Session Laws 2015-259, s. 5(a), effective March 1, 2016, and applicable to service contracts purchased on or after date, deleted "other than a motor vehicle exempt from tax under G.S. 105-164.13(32) " at the end of subdivision (b)(1). Session Laws 2015-259, s. 6(c), effective September 30, 2015, rewrote subdivision (b)(3). For applicability provision, see Editor's note. Session Laws 2016-5, s. 3.24(a), effective May 11, 2016, in subdivision (b)(3), in the first sentence, inserted "leased, or rented" following "purchased" near the beginning, inserted "or related member" near the middle, and inserted "sales tax exemption under G.S. 105-164.13(65) or G.S. 105-164.13 (65a) or a" near the end. See editor's note for applicability. Session Laws 2016-94, s. 38.5(h), effective January 1, 2017, added the last sentence in subdivision (b)(1); and added subdivisions (b)(6) and (b)(7). See editor's note for applicability. Session Laws 2017-57 s. 38.8(b), effective July 1, 2018, repealed subdivision (b)(4). Session Laws 2017-204, s. 2.5(a) and (b), inserted subsection (a1); repealed subsection (b); and rewrote subsection (c). For effective date and applicability, see editor's note. Session Laws 2018-5, s. 38.5(f), effective June 12, 2018, deleted subsection (c), related to exceptions. Session Laws 2019-246, s. 4(k), substituted ‘‘service contract facilitator'' for ‘‘facilitator'' throughout subdivisions (a)(2) and (a)(3); and deleted subsection (e), which read: "Definition. - For purposes of this section, the term 'facilitator' means a person who contracts with the obligor of the service contract to market the service contract and accepts payment from the purchaser for the service contract." For effective date and applicability, see editor's note.