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NC 2014 Sales Tax Law Change on Service Contracts

North Carolina Sales Tax Law Change on Service Contracts Causes Some Confusion | Photo by Shutterstock

Beginning 1/1/2014, North Carolina car dealers are now required to collect sales tax on sales of Service Contracts at the time of delivery.  This is the first time car dealers who do not also sell retail products have had to collect sales tax!  Many are under the impression that the 3% tax dealers have always collected qualifies as sales tax, but it is actually Highway Use Tax (HUT) and is paid to a separate fund than general sales tax.  The HUT and even the new property tax requirements are simple as they are paid directly to the DMV, but this new sales tax requirement may require you to register for a new retail tax ID number and start filing and paying taxes even during time periods when you do not actually collect any tax!

Unfortunately, not a lot of clarity has been provided by the various government agencies, so many dealers and vendors alike are confused.  Some say the amounts should be remitted to the vendors, and the vendors pay the NC DOR.  Some say dealers will have to sign up for a sales tax license and begin filing and remitting payments directly.  There is even confusion whether to only charge the base tax rate of 4.75%, or whether county and city taxes should be included as well and whether it’s the location of the customer or the dealer that should be used to determine the rate!

Many are counting on the decision to be reversed quickly, but one thing is clear- The law is currently active.  Until clarity can come out of the confusion, we are offering the program updates on an as-needed basis.  This update includes a spot to enter the sales tax rate on the Finances screen (bill of sale) and the calculated amount.  For now, this update is offering maximum flexibility and maximum backwards compatibility for forms and accounting by combining the sales tax and price of the service contract into the Service Contract field.  Here’s what you need to know about the update:

  • The Bill of Sale will itemize the Price and Sales Tax separately
  • The total of the Price and Sales Tax will be saved to the standard Service Contract field, so any existing forms and reports will show these 2 values combined.
  • For now, you will need to include the sales tax amount into your cost basis of the service contract manually on the wash out screen! (e.g. If you sell the contract for $1000 and collect $75 sales tax and the cost to you is $600, then on the washout/P&L screen, you will need to enter the cost as $675)
  • Currently there is no way to default the sales tax rate
  • A report will be installed to the Sales Reports folder named NC Sales Tax Report which displays the selling price, tax rate, calculated tax, and totals
  • ONLY THE NC LAW-553 IS UPDATED TO INCLUDE ITEMIZATION OF SALES TAX!  If you are using a different contract, please contact us.

Here is the link for the update.  We will keep this page updated as we find out more!


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