North Carolina imposes 4.75% sales tax on service contracts

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The North Carolina Department of Revenue on Dec. 23, 2013, issued a Directive SD-13-5, which provides guidance for sales tax on the sales price of a service contract.

Under the new legislation, service contract is defined as a warranty agreement, a maintenance agreement, a repair contract, or a similar agreement or contract by which the seller agrees to maintain or repair tangible personal property.

The new law became effective January 1, 2014.

The state imposed a 4.75% state sales tax rate plus applicable local and transit tax rates on taxable service contracts.

Cancellation a service contract does not result in the refund of sales tax paid on the initial purchase of the service contract. If the service contract is not ultimately accepted or executed by the retailer, then any sales tax initially collected is refundable.