4 Tax Changes to Know About

Date: January 17, 2017

Jan. 1 brought changes to corporate, income, gas, and sales taxes in N.C.

There’s been both good news and bad news for North Carolina business owners as 2017 gets underway. At the national level, uncertainty has diminished and confidence has soared for small business owners because of November’s election results. At the state level, there are a few tax changes that businesses should know about.

 Corporate Rate Decrease and Calculation Change

As of Jan. 1, the state corporate tax rate has dropped to 3 percent from about 4 percent. This decrease will continue to improve North Carolina’s business-friendly reputation and encourage businesses to expand, relocate, or set up shop here.

 For businesses operating in more than one state, the way tax is calculated is changing as well, reported the Triangle Business Journal. In these situations, a company’s income must be divided among all the states where it does business, and every state’s formula is different, with the appropriation based on the location of the company’s property, payroll, and sales. In the past, North Carolina weighed all three factors the same, but now its emphasis on sales has quadrupled so as not to hurt companies that have property and payroll in the same location. This change aims to make it easier for North Carolina businesses to hire workers.

 Personal Rate Decrease

For small businesses, many of whom pay their taxes at the personal rate as pass-through entities, there is also some good news. The state personal income tax rate dropped modestly as of Jan. 1 as well, from 5.75 percent to just under 5.5 percent.

Both rate decreases were expected as part of a tax plan enacted in 2015.

 Gas Tax Increase

North Carolina was one of seven states that saw gas taxes rise on New Year’s Day, reported USA Today. However, the increase is minimal at less than a penny per gallon. This was part of an automatic adjustment.

Sales Tax Change

 Finally, the Repair, Maintenance, and Installation Service Tax for Real Property went into effect on Jan. 1. Now, sales tax will apply to labor costs on installation and repair work. The list of what qualifies as a repair, as well as rules about real property contracts for service and improvements, has created a lot of confusion for both businesses and consumers.

WRAL.com provided some examples of what qualifies for a tax and what doesn’t. The following are eligible for tax:

  • Fixing a leaky roof, damaged siding, or furnace/air conditioner
  • Replacing windows or kitchen countertops
  • Plumbing and electrical work
  • Repairing or replacing water heater
  • Installing carpeting or flooring

Meanwhile, these items are not taxed:

  • Replacing a roof, all siding, or an HVAC system
  • Landscaping, painting, kitchen remodeling, maid service, and pressure washing work
  • Construction work requiring a building permit

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