New Sales Tax Rules for Construction Projects in NC


In North Carolina, the General Assembly has been actively pursuing ways to decrease personal income taxes.  In order to help pay for those reductions, they have boosted sales and use tax for personal services over the past year or two.  Service and maintenance businesses had been lumped in to that group, but this year, it has expanded even further.

Color_Seal_300dpiAs of January 1st, 2017, North Carolina made certain construction projects A LOT more complicated.  NC issued new rules for sales and use tax for projects that are classified as “Repair, Maintenance and Installation” (RMI) projects.  According to the NC Department of Revenue (NCDOR), a general contractor that performs “repair, maintenance, and installation services” on or after January 1, 2017 is liable for and should collect sales or use tax on the sales price of or the gross receipts derived from repair, maintenance, and installation services.

Prior to January 1st, a general contractor would pay sales tax on materials they purchase to do the work, and would then invoice the customer without charging sales tax.  Now, for projects such as minor building repairs and cosmetic upgrades, contractors may purchase materials tax free, but will have to charge sales tax (6.75% to 7.5%) on the entire project, materials and labor included.

From the NC Department of Revenue, examples of Repair, Maintenance and Installation (RMI) projects include:

  • HVAC repair for an air conditioning or heating unit that is not working properly.
  • Rekey locks for real property by a locksmith.
  • Repair of a water pump motor.
  • Repair to correct a jammed garage door.
  • Electrical repair due to a light switch or receptacle not working properly.
  • Plumbing services to unclog a drain.
  • Plumbing services to identify and repair a leak in a pipe.
  • Services by a roofing company to identify and repair a roof leak.Money
  • Replace damaged exterior bricks.
  • Replace or repair of a storm door or garage door.
  • Repair or replace countertops.
  • Replace or reface kitchen cabinet doors.
  • Repair or replace a water heater.
  • Repair of a liner for a swimming pool.
  • Repair or replace a single light fixture.
  • Carpet or linoleum install for a single room.
  • Repair or replace single plumbing fixture (i.e. toilet or sink).
  • Replacement of plate glass window.

So, for contractors that mostly do real property improvement projects (capital improvement), the state has issued a certification form (Form E‐589CI) that should be completed for every project, and signed by the Owner, that effectively certifies that the project is NOT and RMI type of project.  This signals to everyone that NO sales tax will be collected for the project.  This will help when NCDOR comes calling for sales tax.

Some more detailed examples:

  • Example 1:  A homeowner hires a handyman service to repair an area of damaged bathroom tiles. The handyman service purchases replacement tile, grout, and sealant exempt from tax by issuing an exemption certificate to the retailer as these items are for resale and will be
    transferred to the customer’s property. The handyman is a retailer and is liable for and should collect sales tax on the total sales price of the repair, maintenance, and installation service.
  • Example 2: A homeowner hires a home improvement business to reface outdated kitchen cabinets. The project requires the home improvement business to replace the exterior cabinet doors, drawer fronts, and cabinet handles. The charge by the home improvement business to the homeowner is $2,500.00. Based on the scope of work, permits are not required to be obtained by either the homeowner or the contractor. This transaction is not a capital improvement nor considered remodeling and is, therefore, not taxed as a real property contract. Rather, the transaction is subject to sales tax as repair, maintenance, and installation services and the contractor is liable for and should collect the general State, applicable local, and applicable transit rates of sales and use tax on the sales price of $2,500.00.
  • Example 3: A homeowner hires a general contractor to convert an attic space into an additional living space. The conversion will involve the reconfiguration of the house’s truss system, the installation of a dormer window, additional plumbing, electrical wiring, framing, and new insulation. The general contractor will secure the applicable permits required by the State Building Code and all work will be inspected by the appropriate local government inspections department. The transaction is a real property contract for new construction with respect to a capital improvement and subject to sales and use tax as a real property contract. The general contractor, as real property contractor, is liable for sales and use tax on the purchase price of all tangible personal property (building materials, etc.) to fulfill the real property contract. The general contractor must issue Form E‐589CI, Affidavit of Capital Improvement, to any subcontractor that is hired to perform any portion of the real property contract, provided a “blanket” Affidavit of Capital Improvement is not already on file with the subcontractor issued from the general contractor. If a subcontractor is not hired to perform any portion of the conversion, no Form E‐589CI is required to be issued or completed by the general contractor.
  • Example 4: A homeowner decides to update the homeowner’s kitchen. The activities include the following: installation of new kitchen cabinets including cabinet boxes, tile, flooring, interior walls painted, and a new sink. Upon completion, the appearance of the room is substantially different. The transaction is remodeling.

As always, there will be some gray areas.  It will take some time for general contractors and customers alike to get used to the new rules.

In North Carolina’s continuing effort to shift the tax burden, they have tried to simplify the rules, but have introduced many levels of complexity to businesses and customers that are not accustomed to dealing with sales tax.  Granted, the majority of typical design-build projects will not be affected.  However, the process of determining compliance is placed squarely on the contractor.

For some more information, check out the following:



  1. Colleen McGuire /Reply

    An individual has a wheelchair lift installed in the home as a medical necessity. It is my understanding that the materials (the lift, platform, switches, etc.) are subject to NC sales tax and are passed along to be paid by the homeowner. However, the labor to install this capital improvement to the home is NOT subject to sales tax. Is that a correct interpretation?

    1. eddie /Reply

      While I am not a tax professional, that is my understanding, assuming this is not replacing an existing wheelchair lift.

  2. Roofer Southland /Reply

    I was looking for this information relating to new sales tax rules construction projects nc. You have really eased my work, loved your writing skill as well. Please keep sharing more!

  3. G. Braga /Reply

    I was looking for information regarding the tax regulations for commercial cabinet making.
    I think I have to pay the tax for materials but I dont have to collect any/

    1. eddie /Reply

      Yes, you will pay tax on materials. You should charge sales tax when you sell the cabinets unless your cabinets are going into a capital improvement project. Most of the time, that would be the case, I assume. However, if you are simply replacing the kitchen cabinets for a customer, you should charge sales tax.

  4. John Helms /Reply

    I’m having new replacement windows installed in my home. All 27 are vinyl replacement windows.

    Should the contractor charge me sales tax on this project?

    1. eddie /Reply

      Complete replacement of a driveway is exempt from sales tax. Repairs of portions of a driveway are taxable.

  5. Payman Nia /Reply

    I’m also having new replacement windows installed along with new roof,new plumbing, electrical upgrades and interior remodel.of an investment property duplex. GC is pulling remodel permits as well so new windows still wouldn’t be considered real property improvement?

    1. eddie /Reply

      If a permit is being issued, then it is a capital improvement and sales tax should not be charged. See

    1. eddie /Reply

      It depends. If a permit is being issued for the work, then it is considered a capital improvement. See

  6. Kat S /Reply

    If I am having all of the shingles, boots, and some flashing on my roof replaced, will I have to pay sales tax on that?

  7. Christopher Wright /Reply

    What would the rule be on installing a walk in tub. This would be removal of an old tub or shower and installing a new unit.

    1. eddie /Reply

      Replacement of an existing tub with a new tub would be subject to sales tax in NC, according to the NC Department of Revenue.

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