Sales and Use Taxes Real Property and Services to Real Property. Eric K. Wayne, Sales & Use Tax Director March 30, 2017

Transcription

1 Sales and Use Taxes Real Property and Services to Real Property Eric K. Wayne, Sales & Use Tax Director March 30, 2017

2 Disclaimer Presentation is for general information only. Presentation content should not be interpreted as specific tax advice for a specific tax situation. Some questions may require additional facts before a response may be given. Some questions may require responses from other Departmental employees or employees in other agencies. The presentation does not take into consideration draft or future legislation. 2

3 Issue Date Subject Recently Published Important Guidance Additional Information Regarding Real Property Contracts and Retail Sales of Repair, Maintenance, and Installation Services to Real Property Wake County Transit Sales and Use Tax Transition Issues Relative to Sales and Use Tax Law Changes with Respect to Real Property Contracts; Repair, Maintenance, and Installation Services to Real Property, and Other Items Form E-589CI, Affidavit of Capital Improvement Additional Guidance to Supplement Form E Service Contracts SD-16-3 Real Property Contracts SD-16-4 Repair, Maintenance, and Installation Services Erroneous Collection of Sales Tax on a Real Property Contract Exemption for Certain Products Made of Recycled Materials Sales and Use Tax Law Changes Form E Additional 0.25% Local Sales and Use Tax (Cherokee, Jackson) 3

4 Service Contract* A contract where the obligor under the contract agrees to maintain, monitor, inspect, or repair digital property or tangible personal property for a period of time or some other defined measure, regardless of whether the property becomes a part of or is applied to real property. The term includes a service contract for a pool, fish tank, or similar aquatic feature and a home warranty. Bundling: If the service contract includes two or more services, one of which is subject to sales and use tax and one of which is not, the person must determine an allocated price for the taxable service portion of the contract based on a reasonable allocation of revenue that is supported by the person's business records kept in the ordinary course of business. Exemption: Fee or charge for an inspection required by law. As amended January 1, 2017 and applies to sales on or after such date. 4

5 RMI applies to: Tangible personal property A motor vehicle Digital property Real property Repair, Maintenance, and Installation Services (RMI)* A person whose only business activity is providing RMI is a retailer.* * As amended effective January 1, 2017 and applies to sales on or after such date. 5

6 RMI* as Defined Includes: To keep or attempt to keep property or a motor vehicle in working order to avoid breakdown and prevent deterioration or repairs. Examples include to clean, wash, or polish property. To calibrate, refinish, restore, or attempt to calibrate, refinish, or restore property or a motor vehicle to proper working order or good condition. This activity may include replacing or putting together what is torn or broken. To troubleshoot, identify, or attempt to identify the source of a problem for the purpose of determining what is needed to restore property or a motor vehicle to proper working order or good condition. To install, apply, connect, adjust, or set into position tangible personal property, digital property, or a motor vehicle. To inspect or monitor property or a motor vehicle, but does not include security or similar monitoring services for real property. * As amended effective January 1, 2017 and applies to sales on or after such date. 6

7 RMI Exemptions* (Partial List) A fee or charge for an inspection required by law, regardless of whether the amount is paid to a public or private entity, provided the charge is separately stated on the invoice or other documentation provided to the purchaser at the time of the sale. Services performed for a person by a related member as defined by N.C. Gen. Stat A. Services performed to resolve an issue that was part of a real property contract if the services are performed within 6 months of completion of the real property contract or, for new construction, within 12 months of the new structure being occupied for the first time. Home inspections related to the preparation for or the sale of real property. Cleaning of real property, except... for a pool, fish tank, or other similar aquatic feature. Landscaping service Pest control service * Effective January 1, 2017 and applies to sales on or after such date. 7

8 Real Property Contract A contract between a real property contractor and another person to perform construction, reconstruction, or remodeling with respect to a capital improvement to real property. Form E-589CI, Affidavit of Capital Improvement, generally required Effective January 1, 2017 and applies to sales on or after such date. 8

9 Real Property Contractor* As amended is a person that contracts to perform a real property contract in accordance with N.C. Gen. Stat H. The term includes: a general contractor a subcontractor, or a builder for purposes of N.C. Gen. Stat H. A real property contractor is the consumer of the tangible personal property, digital property, or service that the real property contractor purchases, installs, or applies for others to fulfill a real property contract and that becomes part of real property or used to fulfill the contract. *As amended effective January 1, 2017 and applies to sales on or after such date. 9

10 Other Relevant Definitions* Real Property - Any one or more of the following: land; building or structure on land; permanent fixture on land; and a manufactured home or a modular home that is placed on a permanent foundation. New Construction - Construction of or site preparation for a permanent new building, structure, or fixture on land or an increase in the square footage of an existing building, structure, or fixture on land. Reconstruction - Rebuild or construct again a prior existing permanent building, structure, or fixture on land and may include a change in the square footage from the prior existing building, structure, or fixture on land. Remodeling - The process of improving or updating a permanent building, structure, or fixture on land or major portions thereof. The term includes renovation. * Effective January 1, 2017 and applies to sales on or after such date. 10

11 Capital Improvement An addition or alteration to real property that is new construction, reconstruction, or remodeling of a building, structure, or fixture on land that becomes part of the real property or is permanently installed or applied to the real property so that removal would cause material damage to the property or article itself. The term does not include the replacement of a fixture in or on a building or structure unless the replacement is part of a remodeling. The term does not include a single repair, maintenance, or installation service. Effective January 1, 2017 and applies to sales on or after such date. 11

12 The term includes: Capital Improvement (Cont.) An addition or an alteration to real property for or by a lessee or tenant, provided it is intended to become a permanent installation and title to it vests in the owner or lessor of the real property immediately upon installation. Effective January 1, 2017 and applies to sales on or after such date. 12

13 The term includes: Capital Improvement (Cont.) Performance of work that requires the issuance of a permit under the State Building Code, other than repair or replacement of electrical components, gas logs, water heater, and similar individual items that are not part of new construction, reconstruction, or remodeling. Items underlined are taxable as repair, maintenance, and installation services Effective January 1, 2017 and applies to sales on or after such date. 13

14 The term includes: Capital Improvement (Cont.) Removal of items from real property, such as debris, construction materials, asbestos, or excavation activities, including the removal of items from a structure such as a dumpster. Installation of underground utilities, notwithstanding that charges for such are included in the gross receipts derived from services subject to the combined general rate under N.C. Gen. Stat Installation of equipment or fixture that is attached to real property so that removal of the item would cause physical, functional, or economic damage to the property and that is capitalized under one or more of the following: the Code, Generally Accepted Accounting Principles, or International Financial Reporting Standards. Effective January 1, 2017 and applies to sales on or after such date. 14

15 The term includes: Painting or wallpapering. Capital Improvement (Cont.) Replacement or installation of a roofing, septic tank, plumbing, electrical, commercial refrigeration, irrigation, sprinkler or other similar systems. Replacement or installation of a heating, ventilation, and air conditioning unit or system. Replacement or installation of roads, driveways, parking lots, and sidewalks. Landscaping service. N.C. Gen. Stat (16e) as [a] service to maintain or improve lawns, yards, or ornamental plants and trees. Examples include the installation of trees, shrubs, or flowers; tree trimming; lawn mowing; and the application of seed, mulch, pesticide, or fertilizer to a lawn or yard. Effective January 1, 2017 and applies to sales on or after such date. 15

16 Mixed Transaction Contracts* Contracts that include both a real property contract for a capital improvement and repair, maintenance, and installation services. 10% Rule - Does RMI exceed 10% of the contract? If no, it is treated as a real property contract. If yes, the allocated amount for RMI is taxable. * Effective January 1, 2017 and applies to sales on or after such date. 16

17 Relevant Forms 17

18 Form E-589CI, Certificate of Capital Improvement 18

19 Form E-595E, Certificate of Exemption 19

20 Property Management Fees Generally management fees set by contract are exempt! Things to ponder: Is the contract for management activities only? Paying bills, obtaining bids, meeting contractors, etc. Is the contract for management fees and additional services/transactions where such additional services/transactions constitute service contracts or repair, maintenance, and installation services? Are the additional services/transactions performed by a company that is a third party whose business is selling service contracts and repair, maintenance, and installation services at retail? Does the owner or lessee reimburse the management company per requirements of an agreement? 20

21 Other Fees Project management services Generally coordinating, overseeing, and expediting the completion of tenant improvements and other construction. Maintenance technician Scope of work? Repair, maintenance, and installation services? Charges per job? Maintenance engineer Related to activities of maintenance technician? Security personnel Remote security monitoring of facilities Disaster recovery Keep in mind that many persons that have historically been service 21 providers are now retailers of services.

22 Questions 22

23 Registration, Filing and Paying Sales and Use Taxes 23

24 Retailer s Responsibilities Obtain a Certificate of Registration online or by using Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Machinery and Equipment Tax. Collect applicable sales and use tax. Timely report the sales and use tax due online or on the E-500, Sales and Use Tax Return. Timely remit the sales and use tax due. Obtain proper exemption documentation from any customers claiming an exemption. 24

25 User s Only Responsibilities Obtain a Certificate of Registration online or by using Form NC-BR, Business Registration Application for Income Tax Withholding, Sales and Use Tax, and Machinery and Equipment Tax. Timely report the use tax due online or on the E-500, Sales and Use Tax Return. Timely pay the use tax due. Generally pay sales tax to North Carolina retailers. Provide proper exemption documentation to the retailer when claiming an exemption. 25

26 Registering to Remit Sales and Use Tax Online Registration (Recommended/Quickest Option) Complete and Submit Form NC-BR in/ncbr_webfill.pdf 26

27 Online Business Registration 27

28 Form NC-BR For sales and use tax, complete sections I, III, and V. 28

29 Filing Frequency Quarterly: Taxpayers who are consistently liable for less than $100 of sales and use tax per month. Monthly: Taxpayers who are consistently liable for at least $100 but less than $20,000 of sales and use tax per month. Monthly (with Prepayment): Taxpayers who consistently owe $20,000 or more of sales and use tax per month. G.S (b)(2) requires the prepayment of the tax to be filed electronically. The sales and use tax return for monthly with prepayment filers must also be filed electronically. 29

30 Once Registered Department issues Certificate of Registration Includes: Account Identification Number/Sales and Use Tax ID Coupon Booklet/Blank Forms E-500, Sales and Use Tax Return, mailed. Form E-505AC, Newly Registered Taxpayers, mailed. 30

31 General Rate of Tax General State rate of sales and use tax is 4.75%. Currently, Local and Transit rates of tax: 2.00% 2.25% 0.50% Transit - Durham, Mecklenburg, and Orange Counties Effective 4/1/17, Wake Co. increases by 0.50% 31

32 File and Pay Sales and Use Tax E-500, Sales and Use Tax Return (Paper Form). E-500 Sales and Use Tax E-File. Sales and Use Tax Electronic Data Interchange (EDI). Electronic Funds Transfer (EFT). E-Business Center: 32

33 Form E-500, Sales and Use Tax Return (Front) 33

34 Form E-500, Sales and Use Tax Return (Back) 34

35 Form E-536, Schedule of County Sales and Use Taxes 35

36 Questions 36