NC Department of Revenue outlines “capital improvements” exemption procedures for contractors

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The PHCCNC has published NC Department of Revenue documents explaining the rules regarding the partial sales tax exemption on capital projects, and the procedures to claim it.

The Plumbing Heating Cooling Contractors of North Carolina (PHCCNC) has published a sales tax update that has relevance to contractors because it sets out the process for determining the “capital improvements” partial tax exemption from the tax for many projects.

“Over the past year, PHCC of NC has been actively working to seek clarification of and revisions to the changes in sales tax laws passed by the legislature in June of 2015 as it applies to our contractor members,” the association said in a notice to members.

PHCCNC appended NC Department of Revenue documents to explain the rules, including a Nov. 16 2016 Directive and a further Dec. 8 document: “FORM E-589CI, AFFIDAVIT OF CAPITAL IMPROVEMENT.”

“Installations that are considered as “Capital Improvements” will require sales tax to be applied to the materials portion only, and NOT on labor,” PHCCNC reported. “An Affidavit of Capital Improvement (E589CI) is REQUIRED to be issued to any and all subcontractor(s) by the Home Owner or General Contractor to be classified as a Capitol Improvement. If Form E589CI is not issued to you by the General Contractor or Home Owner, the project cannot be claimed as a Capitol Improvement by you, and NC Sales and Use Tax is due from you (the subcontractor), payable to the NC Dept. of Revenue, on the total installation price of your materials and labor.”

“When you bill your client for a Capitol Improvement contract amount be advised to put NC Sales Tax Included on the invoice.

“You also need to be aware that if you are in the process of performing work related to a “Capitol Improvement” contract, that any other work performed on the property not related to the Capitol Improvement contract will need to be taxed and recorded separately at the RMI Tax Rate (Labor & Materials) if the other work is in excess of 10% of the Capitol Improvement costs.”

The form E589CI is available at: http://www.dornc.com/downloads/e589ci.pdf.

“Otherwise, all services provided by a plumbing or mechanical contractor that involves repair, maintenance, or installation will require sales tax being collected for both materials and labor and the Tax be remitted to the NC Dept. of Revenue by you,” PHCCNC says.

The association suggests contractors contact their tax accountants on this issue. “They can assist you in setting up a NC Sales and Use Tax Account if you do not already have one. They can also help you in determining if the use of Tax Exemption Certificates for purchases are in your best interest.”

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