Tepid Progress on Reform to Sales and Use Tax

Date: May 31, 2016

Bill could go much farther to provide relief to small business owners.

Tepid Progress on Reform to Sales and Use Tax

A
bill has been filed and referred to the Senate Committee on Finance that would
refine the sales and use tax on repair, maintenance, and installation
services—it’s a step in the right direction, but not far enough.

The
expanded sales tax, which was quietly tucked into the back of a 429-page budget
bill and passed 12 days before the General Assembly’s adjournment in late 2015,
has been controversial and confusing, especially for small business owners.
Starting March 1, 2016, North Carolina businesses that provide services like
home improvement projects, car repairs, and delivery and installation of Home
Depot appliances have had to begin collecting sales tax on their transactions.

 Senate
Bill 870 would provide a grace period for undercollection of the sales and use
tax as well as refine the application of the tax. NFIB/North Carolina will be
keeping a close watch on this effort, so keep an eye out for action alerts on
this issue.

 Meanwhile,
North Carolina recently ranked 25th in the nation for sales tax rates, according to
the Tax Foundation’s
annual report.

 For
its combined state and average local sales tax rate of 6.90 percent, North
Carolina came up in the middle of the pack, ranking as the 25th highest sales taxes in
the country. For state sales tax alone, however, North Carolina’s 4.75 percent
rate earned a better spot on the list: 15th lowest.

The
Tax Foundation addressed the importance of competition in setting sales tax
rates: “Avoidance of sales tax is most likely to occur in areas where there is
a significant difference between two jurisdictions’ sales tax rates. Research
indicates that consumers can and do leave high-tax areas to make major
purchases in low-tax areas…”

 Compared
to neighboring states, North Carolina fares pretty well. Tennessee has the
highest combined state and local sales tax rates in the country (9.46 percent),
and Georgia and South Carolina both have higher combined rates (7.01 percent
and 7.22 percent, respectively). Only Virginia, with a combined rate of 5.63
percent, outperformed North Carolina.

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