GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2025
S 1
SENATE BILL 303
Short Title: Repeal Service Tax. (Public)
Sponsors: Senators Smith, Grafstein, and Bradley (Primary Sponsors).
Referred to: Rules and Operations of the Senate
March 18, 2025
*S303 -v-1*
A BILL TO BE ENTITLED 1
AN ACT TO REPEAL THE SERVICE TAX AND TO MAKE VARIOUS CONFORM ING 2
CHANGES NECESSARY TO EFFECTUATE THE REPEAL. 3
The General Assembly of North Carolina enacts: 4
5
PART I. REPEAL OF SERVICE TAX AND ATTEND ANT CONFORMING CHANG ES 6
SECTION 1.(a) G.S. 105-164.4 reads as rewritten: 7
"§ 105-164.4. Tax imposed on retailers and certain facilitators. 8
(a) A privilege tax is imposed on a retailer engaged in business in the State at the 9
percentage rates of the retailer's net taxable sales or gross receipts, listed in this subsection. The 10
general rate of tax is four and three-quarters percent (4.75%). The percentage rates are as follows: 11
(1) The general rate of tax applies to the following items sold at retail: 12
… 13
c. The sales price of or gross receipts derived from repair, maintenance, 14
and installation services to tangible personal property or certain digital 15
property, regardless of whether the tangible personal property or 16
certain digital property is taxed under another subdivision in this 17
section or is subject to a maximum tax under another subdivision in 18
this section. Repair, maintenance, and installation services generally 19
include any tangible personal property or certain digital property that 20
becomes a part of or is applied to a purchaser's property. The use tax 21
exemption in G.S. 105-164.27A(a3) may apply to these services. 22
Repair, maintenance, and installation services for real property are 23
taxable under subdivision (16) of this subsection. 24
… 25
(11) The general rate of tax applies to the sales price of or the gross receipts derived 26
from a service contract. A service contract is taxed in accordance with 27
G.S. 105-164.4I. 28
… 29
(16) The general rate applies to the sales price of or the gross receipts derived from 30
repair, maintenance, and installation services for real property and generally 31
includes any tangible personal property or certain digital property that 32
becomes a part of or is applied to a purchaser's property. A mixed transaction 33
contract and a real property contract are taxed in accordance with 34
G.S. 105-164.4H.A property management contract is taxable in accordance 35
with G.S. 105-164.4K. 36 General Assembly Of North Carolina Session 2025
Page 2 Senate Bill 303-First Edition
…." 1
SECTION 1.(b) G.S. 105-164.4B reads as rewritten: 2
"§ 105-164.4B. Sourcing principles. 3
(a) General Principles. – The following principles apply in determining where to source 4
the sale of an item for the seller's purpose and do not alter the application of the tax imposed 5
under G.S. 105-164.6. Except as otherwise provided in this section, a service is sourced where 6
the purchaser can potentially first make use of the service. These principles apply regardless of 7
the nature of the item, except as otherwise noted in this section: 8
… 9
(i) Computer Software Renewal. – The gross receipts derived from the renewal of a 10
service contract for prewritten software is generally sourced pursuant to subdivision (a) of this 11
section. where the purchaser can potentially first make use of the prewritten software. However, 12
sourcing the renewal to an address where the purchaser received the underlying prewritten 13
software does not constitute bad faith provided the seller has not received information from the 14
purchaser that indicates a change in the location of the underlying software." 15
SECTION 1.(c) G.S. 105-164.4D reads as rewritten: 16
"§ 105-164.4D. Bundled transactions. 17
(a) Tax Application. – Tax applies to the sales price of a bundled transaction unless one 18
of the following applies: 19
… 20
(2) Allocation. – The bundle includes a service, and the retailer determines an 21
allocated price for each item in the bundle based on a reasonable allocation of 22
revenue that is supported by the retailer's business records kept in the ordinary 23
course of business. In this circumstance, tax applies to the allocated price of 24
each taxable item in the bundle. 25
… 26
(b) Determining Threshold. – A retailer of a bundled transaction subject to this section 27
may use either the retailer's purchase price or the retailer's sales price to determine if the 28
transaction meets the fifty percent (50%) test or the ten percent (10%) test set out in subdivisions 29
(a)(1) and (a)(3) of this section. A retailer may not use a combination of purchase price and sales 30
price to make this determination. If a bundled transaction subject to subdivision (a)(3) of this 31
section includes a service contract, the retailer of the contract in determining whether the 32
transaction meets the threshold set in the subdivision." 33
SECTION 1.(d) G.S. 105-164.4H reads as rewritten: 34
"§ 105-164.4H. Real property contract. 35
(a) Applicability. – A real property contractor is the consumer of the tangible personal 36
property or certain digital property that the real property contractor purchases, installs, or applies 37
for others to fulfill a real property contract and that becomes part of real property or used to fulfill 38
the contract. A retailer engaged in business in the State shall collect tax on the sales price of an 39
item sold at retail to a real property contractor unless a statutory exemption in G.S. 105-164.13 40
or G.S. 105-164.13E applies. Where a real property contractor purchases tangible personal 41
property or certain digital property for storage, use, or consumption in this State, or a service 42
sourced to this State, and the tax due is not paid at the time of purchase, the provisions of 43
G.S. 105-164.6 apply except as provided in subsection (b) of this section. 44
(a1) Substantiation. – Generally, services to real property are retail sales of or the gross 45
receipts derived from repair, maintenance, and installation services and subject to tax in 46
accordance with G.S. 105-164.4(a)(16), unless a person substantiates that a transaction is subject 47
to tax as a real property contract in accordance with subsection (a) of this section, subject to tax 48
as a mixed transaction in accordance with subsection (d) of this section, or the transaction is not 49
subject to tax. A person may substantiate that a transaction is subject to tax as a real property 50
contract or a mixed transaction in accordance with subsection (a) of this section by records that 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 3
establish the transaction is a real property contract or by receipt of an affidavit of capital 1
improvement. The receipt of an affidavit of capital improvement, absent fraud or other egregious 2
activities, establishes that the subcontractor or other person receiving the affidavit should treat 3
the transaction as a capital improvement, and the transaction is subject to tax in accordance with 4
subsection (a) of this section. A person that issues an affidavit of capital improvement is liable 5
for any additional tax due on the transaction, in excess of tax paid on related purchases under 6
subsection (a) of this section, if it is determined that the transaction is not a capital improvement 7
but rather the transaction is subject to tax as a retail sale. A person who receives an affidavit of 8
capital improvement from another person, absent fraud or other egregious activities, is not liable 9
for any additional tax on the gross receipts from the transaction if it is determined that the 10
transaction is not a capital improvement. 11
… 12
(d) Mixed Transaction Contract. – A mixed transaction contract is taxable as follows: 13
(1) If the allocated sales price of the taxable repair, maintenance, and installation 14
services included in the contract is less than or equal to twenty-five percent 15
(25%) of the contract price, then the repair, maintenance, and installation 16
services portion of the contract, and the items used to perform those services, 17
are taxable as a real property contract in accordance with this section. 18
(2) If the allocated sales price of the taxable repair, maintenance, and installation 19
services included in the contract is greater than twenty-five percent (25%) of 20
the contract price, then sales and use tax applies to the sales price of or the 21
gross receipts derived from the taxable repair, maintenance, and installation 22
services portion of the contract. The person must determine an allocated price 23
for the taxable repair, maintenance, and installation services in the contract 24
based on a reasonable allocation of revenue that is supported by the person's 25
business records kept in the ordinary course of business. Any purchase of 26
tangible personal property or certain digital property to fulfill the real property 27
contract is taxed in accordance with this section. 28
…." 29
SECTION 1.(e) G.S. 105-164.4I is repealed. 30
SECTION 1.(f) G.S. 105-164.4J reads as rewritten: 31
"§ 105-164.4J. Marketplace-facilitated sales. 32
… 33
(i) Limitation. – This section does not apply to an accommodation facilitator, an 34
admission facilitator, or a service contract facilitator whose collection and remittance 35
requirements are set out in G.S. 105-164.4F, 105-164.4G, and 105-164.4I, respectively.facilitator 36
or an admission facilitator whose collection and remittance requirements are set out in 37
G.S. 105-164.4F and G.S. 105-164.4G, respectively. 38
…." 39
SECTION 1.(g) G.S. 105-164.4K reads as rewritten: 40
"§ 105-164.4K. Property management contracts. 41
(a) Taxability of Services under a Property Management Contract. – Repair, 42
maintenance, and installation services taxable under this Article and provided by a real property 43
manager under a property management contract are subject to sales and use tax in the following 44
circumstances: 45
(1) Repair, maintenance, installation services provided by the real property 46
manager for an additional charge. 47
(2) The real property manager arranges for a third party to provide the repair, 48
maintenance, and installation services and the real property manager imposes 49
an additional contract amount or charge for the arranging of these services. 50 General Assembly Of North Carolina Session 2025
Page 4 Senate Bill 303-First Edition
(3) More than twenty-five percent (25%) of the time spent managing the real 1
property for a billing or invoice period is attributable to repair, maintenance, 2
and installation services taxable under this Article and not excluded by 3
subsection (b) of this section. The tax applies to the sales price of or the gross 4
receipts derived from the taxable repair, maintenance, and installation services 5
portion of the property management contract. The real property manager must 6
determine an allocated sales price for the repair, maintenance, and installation 7
services portion of the property management contract based on a reasonable 8
allocation of revenue that is supported by the person's business records kept 9
in the ordinary course of business. The charges for the taxable repair, 10
maintenance, and installation services must be separately stated on the invoice 11
or similar billing document given to the customer at the time of the sale. 12
(b) Exclusions. – The tax imposed by this Article does not apply to the following repair, 13
maintenance, and installation services if the services are provided by the real property manager 14
pursuant to a property management contract: 15
(1) To troubleshoot, identify, or attempt to identify the source of a problem for 16
the purpose of determining what is needed to restore the real property to 17
working order or good condition. 18
(2) To inspect or monitor the real property, including the normal operation of all 19
systems that are part of the real property. 20
(c) Substantiation. – Generally, repair, maintenance, and installation services are subject 21
to tax in accordance with G.S. 105-164.4(a)(16), unless a person substantiates that the services 22
are not taxable as real property management services provided under a property management 23
contract in accordance with subsection (a)(3) of this section, excluded from tax in accordance 24
with subsection (b) of this section, or not subject to tax. A real property manager may substantiate 25
that no more than twenty-five percent (25%) of the time spent managing the real property for a 26
billing or invoice period is attributable to repair, maintenance, and installation services taxable 27
under this Article and not excluded by subsection (b) of this section. The substantiation must be 28
based on a reasonable approximation of the real property management services provided and 29
supported by the person's business records kept in the ordinary course of business. The 30
substantiation must be contemporaneously provided for each billing or invoice period and 31
maintained in the business records. 32
(d) Real Property Management Services. – This subsection applies when repair, 33
maintenance, and installation services otherwise taxable under this Article are not subject to sales 34
and use tax. A real property manager is the consumer of the items that the real property manager 35
purchases, installs, applies, or otherwise uses to fulfill a property management contract. A retailer 36
engaged in business in the State shall collect tax on the sales price of an item sold at retail to a 37
real property manager unless a statutory exemption in G.S. 105-164.13 applies. 38
(e) Real Property Manager Acting as Retailer. – This subsection applies when repair, 39
maintenance, and installation services provided by a real property manager are subject to sales 40
and use tax under this section. A real property manager acts as a retailer and makes a sale at retail 41
when it provides repair, maintenance, and installation services taxable under this section unless 42
a statutory exemption in G.S. 105-164.13 applies. 43
…." 44
SECTION 1.(h) G.S. 105-164.6 reads as rewritten: 45
"§ 105-164.6. Complementary use tax. 46
(a) Tax. – An excise tax at the applicable rate and maximum tax, if any, set in 47
G.S. 105-164.4 is imposed on the following items if the item is subject to tax under 48
G.S. 105-164.4: 49
… 50
(3) Services sourced to this State. 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 5
…." 1
SECTION 1.(i) G.S. 105-164.11A reads as rewritten: 2
"§ 105-164.11A. Refund of tax paid on rescinded sale or cancellation of service. 3
(a) Refund. – A retailer is allowed a refund of sales tax remitted on a rescinded sale or 4
cancelled service. sale. A sale is rescinded when the purchaser returns an item to the retailer and 5
receives a refund, in whole or in part, of the sales price paid, including a refund of the pro rata 6
amount of the sales tax based on the taxable amount of the sales price refunded. A service is 7
cancelled when the service is terminated and the purchaser receives a refund, in whole or in part, 8
of the sales price paid, including a refund of the pro rata amount of the sales tax paid based on 9
the taxable amount of the sales price refunded. A retailer entitled to a refund under this section 10
may reduce taxable receipts by the taxable amount of the refund for the period in which the 11
refund occurs or may request a refund of an overpayment as provided in G.S. 105-241.7, 12
provided the tax has been refunded to the purchaser. The records of the retailer must clearly 13
reflect and support the claim for refund for an overpayment of tax or adjustment to taxable 14
receipts for the period in which the refund occurs. 15
(b) Service Contract. – When a service contract is cancelled and a purchaser receives a 16
refund, in whole or in part, of the sales price paid for the service contract, the purchaser may 17
receive a refund of the pro rata amount of the sales tax paid based on the taxable amount of the 18
sales price refunded as provided in this subsection: 19
(1) Refund from retailer. – If the purchaser receives a refund on any portion of 20
the sales price for a service contract purchased from the retailer required to 21
remit the tax on the retail sale of the service contract, then the provisions of 22
subsection (a) of this section apply. 23
(2) Refund application. – If the purchaser receives a refund on any portion of the 24
sales price for a service contract from a person other than the retailer required 25
to remit the tax on the retail sale of the service contract, then the amount 26
refunded to the purchaser by the person does not have to include the sales tax 27
on the taxable amount of the refund. If the amount refunded to the purchaser 28
by the person does not include the sales tax paid, then the purchaser may apply 29
to the Department for a refund of the pro rata amount of the tax paid based on 30
the taxable amount of the service contract refunded to the purchaser. The 31
application for a refund by a purchaser must be made on a form prescribed by 32
the Secretary, supported by documentation on the taxable amount of the 33
service contract refunded to the purchaser from the person who refunded that 34
amount, and filed within 30 days after the purchaser receives a refund. An 35
application for a refund filed by the purchaser after the due date is barred. 36
Taxes for which a refund is allowed directly to the purchaser for sales tax paid 37
on a service contract are not an overpayment of tax and do not accrue interest 38
as provided in G.S. 105-241.21." 39
SECTION 1.(j) G.S. 105-164.12B reads as rewritten: 40
"§ 105-164.12B. Tangible personal property sold below cost with conditional contract. 41
… 42
(b) Tax. – If a seller transfers an item of tangible personal property as part of a conditional 43
contract, a sale has occurred. The sales price of the item is presumed to be the retail price at 44
which the item would sell in the absence of the conditional contract. Sales tax at the general rate 45
under G.S. 105-164.4(a) is due at the time of the transfer on the following: 46
(1) Any part of the presumed sales price the consumer pays at that time, if the 47
service in the contract is taxable at the combined general rate. 48
(2) The presumed sales price, if the service in the contract is not taxable at the 49
combined general rate. 50 General Assembly Of North Carolina Session 2025
Page 6 Senate Bill 303-First Edition
(3) The percentage of the presumed sales price that is equal to the percentage of 1
the service in the contract that is not taxable at the combined general rate, if 2
any part of the service in the contract is not taxable at the combined general 3
rate. 4
…." 5
SECTION 1.(k) G.S. 105-164.13A is repealed. 6
SECTION 1.(l) G.S. 105-164.14 reads as rewritten: 7
"§ 105-164.14. Certain refunds authorized. 8
(a) Interstate Carriers. – An interstate carrier is allowed a refund, in accordance with this 9
section, of part of the sales and use taxes paid by it on the purchase in this State of railway cars 10
and locomotives, and fuel, lubricants, repair parts, accessories, service contracts, and repair, 11
maintenance, and installation services and accessories for a motor vehicle, railroad car, 12
locomotive, or airplane the carrier operates. An "interstate carrier" is a person who is engaged in 13
transporting persons or property in interstate commerce for compensation. The Secretary shall 14
prescribe the periods of time, whether monthly, quarterly, semiannually, or otherwise, with 15
respect to which refunds may be claimed, and shall prescribe the time within which, following 16
these periods, an application for refund may be made. 17
An applicant for refund shall furnish the following information and any proof of the 18
information required by the Secretary: 19
(1) A list identifying the railway cars, locomotives, fuel, lubricants, repair parts, 20
accessories, service contracts, and repair, maintenance, and installation 21
services and accessories purchased by the applicant inside or outside this State 22
during the refund period. 23
(2) The purchase price of the taxable tangible personal property and services 24
listed in subdivision (1) of this subsection. For purposes of this subdivision, 25
the term "taxable" is based on the imposition of tax on the tangible personal 26
property and services in the State. 27
… 28
For each applicant, the Secretary shall compute the amount to be refunded as follows. First, 29
the Secretary shall determine the mileage ratio. The numerator of the mileage ratio is the number 30
of miles the applicant operated all motor vehicles, railroad cars, locomotives, and airplanes in 31
this State during the refund period. The denominator of the mileage ratio is the number of miles 32
the applicant operated all motor vehicles, railroad cars, locomotives, and airplanes both inside 33
and outside this State during the refund period. Second, the Secretary shall determine the 34
applicant's proportional liability for the refund period by multiplying this mileage ratio by the 35
purchase price of the tangible personal property and services identified in subdivision (1) of this 36
subsection and then multiplying the resulting product by the tax rate that would have applied to 37
the items if they had all been purchased in this State. Third, the Secretary shall refund to each 38
applicant the excess of the amount of sales and use taxes the applicant paid in this State during 39
the refund period on these items over the applicant's proportional liability for the refund period. 40
… 41
(b) Nonprofit Entities and Hospital Drugs. – A nonprofit entity is allowed a semiannual 42
refund of sales and use taxes paid by it under this Article on direct purchases of items for use in 43
carrying on the work of the nonprofit entity. Sales and use tax liability indirectly incurred by a 44
nonprofit entity through reimbursement to an authorized person of the entity for the purchase of 45
tangible personal property and services for use in carrying on the work of the nonprofit entity is 46
considered a direct purchase by the entity. Sales and use tax liability indirectly incurred by a 47
nonprofit entity on building materials, supplies, fixtures, and equipment that become a part of or 48
annexed to any building or structure that is owned or leased by the nonprofit entity and is being 49
erected, altered, or repaired for use by the nonprofit entity for carrying on its nonprofit activities 50
is considered a sales or use tax liability incurred on direct purchases by the nonprofit entity. The 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 7
refund allowed under this subsection does not apply to purchases of electricity, 1
telecommunications service, ancillary service, piped natural gas, video programming, or a 2
prepaid meal plan. A request for a refund must be in writing and must include any information 3
and documentation required by the Secretary. A request for a refund for the first six months of a 4
calendar year is due the following October 15; a request for a refund for the second six months 5
of a calendar year is due the following April 15. The aggregate annual refund amount allowed an 6
entity under this subsection for the State's fiscal year may not exceed thirty-one million seven 7
hundred thousand dollars ($31,700,000). 8
… 9
(c) Certain Governmental Entities. – A governmental entity listed in this subsection is 10
allowed an annual refund of sales and use taxes paid by it under this Article on direct purchases 11
of items. Sales and use tax liability indirectly incurred by a governmental entity on building 12
materials, supplies, fixtures, and equipment that become a part of or annexed to any building or 13
structure that is owned or leased by the governmental entity and is being erected, altered, or 14
repaired for use by the governmental entity is considered a sales or use tax liability incurred on 15
direct purchases by the governmental entity for the purpose of this subsection. The refund 16
allowed under this subsection does not apply to purchases of electricity, telecommunications 17
service, ancillary service, piped natural gas, video programming, or a prepaid meal plan. A 18
request for a refund must be in writing and must include any information and documentation 19
required by the Secretary. A request for a refund is due within six months after the end of the 20
governmental entity's fiscal year. 21
This subsection applies only to the following governmental entities: 22
… 23
(20) A constituent institution of The University of North Carolina, but only with 24
respect to sales and use tax paid by it for tangible personal property or services 25
that are eligible for refund under this subsection acquired by it through the 26
expenditure of contract and grant funds. 27
…." 28
SECTION 1.(m) G.S. 105-164.20 reads as rewritten: 29
"§ 105-164.20. Cash or accrual basis of reporting. 30
… 31
(b) Accrual Basis. – For purposes of reporting and remitting sales tax under this Article, 32
a retailer listed in this subsection must report the gross receipts it derives from the taxable 33
transaction listed in this subsection on an accrual basis of accounting. The following retailers 34
must report gross receipts as provided in this subsection: 35
… 36
(3) A retailer who sells or derives gross receipts from a service contract, as 37
provided in G.S. 105-164.4I(d)." 38
SECTION 1.(n) G.S. 105-164.26 reads as rewritten: 39
"§ 105-164.26. Presumption that sales are taxable. 40
For the purpose of the proper administration of this Article and to prevent evasion of the retail 41
sales tax, the following presumptions apply: 42
… 43
(5) That a service purchased for receipt in this State is purchased for storage, use, 44
or consumption in this State." 45
SECTION 1.(o) G.S. 105-164.27A reads as rewritten: 46
"§ 105-164.27A. Direct pay permit. 47
(a) General. – A general direct pay permit authorizes its holder to purchase certain items 48
without paying tax to the seller and authorizes the seller to not collect any tax on a sale to the 49
permit holder. A general direct pay permit may not be used for purposes identified in subsections 50
(a1), (a2), (a3), or (b) of this section. A person who purchases an item under a direct pay permit 51 General Assembly Of North Carolina Session 2025
Page 8 Senate Bill 303-First Edition
issued under this subsection is liable for use tax due on the purchase. The tax is payable when 1
the property is placed in use or the service is received. use. A direct pay permit issued under this 2
subsection does not apply to taxes imposed under G.S. 105-164.4 on sales of electricity, piped 3
natural gas, video programming, spirituous liquor, or the gross receipts derived from rentals of 4
accommodations. 5
… 6
(a3) Boat and Aircraft. – A direct pay permit issued under this subsection authorizes its 7
holder to purchase tangible personal property, certain digital property, or repair, maintenance, 8
and installation services property or certain digital property for a boat, an aircraft, or a qualified 9
jet engine without paying tax to the seller and authorizes the seller to not collect any tax on the 10
purchased items from the permit holder. A person who purchases the tangible personal property, 11
certain digital property, or repair, maintenance, and installation services property or certain 12
digital property under a direct pay permit must file a return and pay the tax due to the Secretary 13
in accordance with G.S. 105-164.16. A permit holder is allowed a use tax exemption on one or 14
more of the following: (i) the installation charges that are a part of the sales price of tangible 15
personal property or certain digital property purchased by the permit holder for a boat, an aircraft, 16
or a qualified jet engine, provided the installation charges are separately stated and identified as 17
such on the invoice or other documentation given to the permit holder at the time of the sale and 18
(ii) the sales price of or gross receipts derived from repair, maintenance, and installation services 19
provided for a boat or an aircraft.sale. 20
In lieu of purchasing under a direct pay permit pursuant to this subsection, a purchaser may 21
elect to have the seller collect and remit the tax due on behalf of the purchaser. Where the 22
purchaser elects for the seller to collect and remit the tax, an invoice given to the purchaser 23
bearing the proper amount of tax on a retail transaction extinguishes the purchaser's liability for 24
the tax on the transaction. Where a seller cannot or does not separately state installation charges 25
that are a part of the sales price of tangible personal property or certain digital property for a boat, 26
an aircraft, or a qualified jet engine on the invoice or other documentation given to the purchaser 27
at the time of the sale, tax is due on the total purchase price. 28
The amount of the use tax exemption is the amount of the installation charges and the sales 29
price of or gross receipts derived from the repair, maintenance, and installation services that 30
exceed twenty-five thousand dollars ($25,000). 31
…." 32
SECTION 1.(p) G.S. 105-187.5 reads as rewritten: 33
"§ 105-187.5. Alternate tax for a limited possession commitment. 34
(a) Election. – A retailer may elect not to pay the tax imposed by this Article at the rate 35
set in G.S. 105-187.3 when applying for a certificate of title for a motor vehicle purchased by the 36
retailer for a limited possession commitment. A retailer who makes this election shall pay a tax 37
on the gross receipts of the limited possession commitment of the vehicle. The portion of a 38
limited possession commitment billing or payment that represents any amount applicable to the 39
sales price of a service contract as defined in G.S. 105-164.3 should not be included in the gross 40
receipts subject to the tax imposed by this Article. The charge must be separately stated on 41
documentation given to the purchaser at the time the limited possession commitment goes into 42
effect, or on the monthly billing statement or other documentation given to the purchaser. When 43
a limited possession commitment is sold to another retailer, the seller of the limited possession 44
commitment should provide to the purchaser of the limited possession commitment the 45
documentation showing that the service contract and applicable sales taxes were separately stated 46
at the time the limited possession commitment went into effect and the new retailer must retain 47
the information to support an allocation for tax computed on the gross receipts subject to highway 48
use tax. Like the tax imposed by G.S. 105-187.3, this alternate tax is a tax on the privilege of 49
using the highways of this State. The tax is imposed on a retailer, but is to be added to the limited 50 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 9
possession commitment of a motor vehicle and thereby be paid by the person who enters into a 1
limited possession commitment with a retailer. 2
…." 3
SECTION 1.(q) G.S. 105-237.1 reads as rewritten: 4
"§ 105-237.1. Compromise of liability. 5
(a) Authority. – The Secretary may compromise a taxpayer's liability for a tax that is 6
collectible under G.S. 105-241.22 when the Secretary determines that the compromise is in the 7
best interest of the State and makes one or more of the following findings: 8
… 9
(7) The assessment is for sales tax the taxpayer failed to collect or use tax the 10
taxpayer failed to pay as a result of the change in the definition of retailer or 11
the sales tax base expansion to (i) service contracts, (ii) repair, maintenance, 12
and installation services, or (iii) sales transactions for a person in retail trade. 13
The Secretary must determine that the taxpayer made a good-faith effort to 14
comply with the sales and use tax laws. This subdivision applies to 15
assessments for any reporting period beginning March 1, 2016, and ending 16
December 31, 2022. 17
(8) The assessment is for sales tax the taxpayer failed to collect or use tax the 18
taxpayer failed to pay on repair, maintenance, and installation services 19
provided by a real property manager under a property management contract. 20
The Secretary must determine that the taxpayer made a good-faith effort to 21
comply with the sales and use tax laws. Absent fraud or other egregious 22
activities, a taxpayer that substantiated the time spent managing real property 23
for a billing or invoice period as provided under G.S. 105-164.4K(c) will be 24
determined to have made a good-faith effort to comply with the sales and use 25
tax laws. 26
…." 27
SECTION 1.(r) G.S. 105-467(b) reads as rewritten: 28
"(b) Exemptions and Refunds. – The State exemptions and exclusions contained in Article 29
5 of Subchapter I of this Chapter, except for the exemption for food in G.S. 105-164.13B, apply 30
to the local sales and use tax authorized to be levied and imposed under this Article. The State 31
refund provisions contained in G.S. 105-164.14 and G.S. 105-164.14A apply to the local sales 32
and use tax authorized to be levied and imposed under this Article. A refund of an excessive or 33
erroneous State sales tax collection allowed under G.S. 105-164.11 and a refund of State sales 34
tax paid on a rescinded sale or cancelled service contract under G.S. 105-164.11A apply applies 35
to the local sales and use tax authorized to be levied and imposed under this Article. The 36
aggregate annual local refund amount allowed an entity under G.S. 105-164.14(b) for the State's 37
fiscal year may not exceed thirteen million three hundred thousand dollars ($13,300,000). 38
…." 39
40
PART II. REPEAL OF SERVICE TAX EXEMPTION S 41
SECTION 2.(a) G.S. 105-164.13 reads as rewritten: 42
"§ 105-164.13. Retail sales and use tax. 43
The sale at retail and the use, storage, or consumption in this State of the following items are 44
specifically exempted from the tax imposed by this Article: 45
… 46
(43b) Computer software or certain digital property that becomes a component part 47
of other computer software or certain digital property that is offered for sale 48
or of a service that is offered for sale.sale. 49
… 50 General Assembly Of North Carolina Session 2025
Page 10 Senate Bill 303-First Edition
(59) Interior design services provided in conjunction with the sale of tangible 1
personal property. 2
… 3
(61) A motor vehicle service contract. 4
(61a) The sales price of or the gross receipts derived from the repair, maintenance, 5
and installation services and service contracts listed in this subdivision are 6
exempt from tax. Except as otherwise provided in this subdivision, an item 7
used to fulfill either repair, maintenance, and installation services or service 8
contracts exempt from tax under this subdivision is taxable. The list of repair, 9
maintenance, and installation services and service contracts exempt from tax 10
under this subdivision is as follows: 11
a. A service and a service contract for an item exempt from tax under this 12
Article, except as otherwise provided in this subdivision. Items used 13
to fulfill a service or service contract exempt under this 14
sub-subdivision are exempt from tax under this Article. This 15
exemption does not apply to water for a pool, fish tank, or similar 16
aquatic feature or to a motor vehicle, except as provided under 17
subdivision (62a) of this section and fees under sub-subdivision b. of 18
this subdivision. 19
b. A motor vehicle emissions and safety inspection fee imposed pursuant 20
to G.S. 20-183.7, provided the fee is separately stated on the invoice 21
or other documentation provided to the purchaser at the time of the 22
sale. 23
c. A service performed for a person by a related member. 24
d. Cleaning of real property, except where the service constitutes a part 25
of the gross receipts derived from the rental of an accommodation 26
subject to tax under G.S. 105-164.4 or for a pool, fish tank, or other 27
similar aquatic feature. Examples of cleaning of real property include 28
custodial services, window washing, mold remediation services, 29
carpet cleaning, removal of debris from gutters, removal of dust and 30
other pollutants from ductwork, and power washing other than for a 31
pool. 32
e. A service on roads, driveways, parking lots, and sidewalks. 33
f. Removal of waste, trash, debris, grease, snow, and other similar 34
tangible personal property from property, other than a motor vehicle. 35
The exemption applies to a household or a commercial trash collection 36
and removal service. The exemption applies to the removal of septage 37
from property, including motor vehicles, but does not include removal 38
of septage from portable toilets. 39
g. The following inspections: 40
1. An inspection performed where the results are included in a 41
report for the sale or financing of real property. 42
2. An inspection of the structural integrity of real property, 43
provided the charge for the inspection is separately stated on 44
the invoice or other documentation given to the purchaser at 45
the time of the sale. 46
3. An inspection to a system that is a capital improvement under 47
G.S. 105-164.3(31)f., provided the inspection is to fulfill a 48
safety requirement and provided the charge for the inspection 49
is separately stated on the invoice or other documentation 50
given to the purchaser at the time of the sale. 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 11
h. Alteration and repair of clothing, except where the service constitutes 1
a part of the gross receipts derived from the rental of clothing subject 2
to tax under G.S. 105-164.4 or for alteration and repair of belts and 3
shoes. 4
i. Pest control service. For purposes of this exemption, the term "pest 5
control service" means the application of pesticides to real property. 6
j. Moving service. For purposes of this exemption, the term "moving 7
service" means a service for hire to transport or relocate a person's 8
existing belongings to or from any destination. 9
k. Self-service vehicle wash or vacuum and limited-service vehicle wash. 10
For purposes of this sub-subdivision, the following definitions apply: 11
1. Limited-service vehicle wash. – The cleaning of a vehicle by 12
mechanical means where the only activities performed by an 13
employee include one or more of the following: (i) receiving 14
payment for the transaction, (ii) guiding the vehicle into the 15
entrance or exit of a conveyor, (iii) applying low-pressure 16
spray of chemicals to the vehicle prior to the cleaning of the 17
vehicle, or (iv) placing protective tape or covers on the vehicle 18
prior to cleaning. The term does not include any activity 19
whereby an employee physically touches the vehicle for the 20
purpose of cleaning or restoring the vehicle, enters or cleans 21
any part of the interior of the vehicle, or performs an activity 22
on the vehicle other than one of those listed in this 23
sub-sub-subdivision. 24
2. Self-service vehicle wash or vacuum. – The cleaning of a 25
vehicle by a customer without any cleaning or restoring 26
activity performed by an employee. 27
l. Services performed on a transmission, distribution, or other network 28
asset on land owned by a service provider or on a right-of-way or an 29
easement in favor of a service provider. This exemption does not apply 30
to charges billed to a customer for repair, maintenance, and installation 31
services or a contribution in aid of construction and are included in the 32
gross receipts derived from items subject to the combined general rate 33
under G.S. 105-164.4. The terms "service provider" and 34
"governmental entity" have the same meaning as defined in 35
G.S. 105-164.3(31)c. 36
m. Any of the following: 37
1. A qualified aircraft. 38
2. A qualified jet engine. 39
3. An aircraft with a gross take-off weight of more than 2,000 40
pounds. 41
n. Funeral-related service, including a service for the burial of remains. 42
This exemption does not apply to the sale of tangible personal 43
property, such as caskets, headstones, and monuments. 44
o. A service performed on an animal, such as hoof shoeing and 45
microchipping a pet. 46
p. A security or similar monitoring contract for real property. The 47
exemption provided in this subdivision does not apply to charges for 48
repair, maintenance, and installation services to repair security, alarm, 49
and other similar monitoring systems for real property. 50
q. A contract to provide a certified operator for a wastewater system. 51 General Assembly Of North Carolina Session 2025
Page 12 Senate Bill 303-First Edition
… 1
(61c) Installation charges that are a part of the sales price of tangible personal 2
property purchased by a real property contractor to fulfill a real property 3
contract for an item that is installed or applied to real property, provided the 4
installation charges are separately stated and identified as such on the invoice 5
or other documentation given to the real property contractor at the time of the 6
sale. property. The exemption also applies to installation charges by a 7
retailer-contractor when performing installation services for a real property 8
contract. The exemption includes any labor costs provided by the real property 9
contractor, including employees' wages, or labor purchased from a third party 10
that would otherwise be included in the definition of "purchase price." 11
(61d) Installation charges that are a part of the sales price of or gross receipts derived 12
from repair, maintenance, and installation services or installation charges only 13
purchased by a real property contractor to fulfill a real property contract, 14
provided the installation charges are separately stated and identified as such 15
on the invoice or other documentation given to the real property contractor at 16
the time of the sale. The exemption also applies to installation charges by a 17
retailer-contractor when performing a real property contract. The exemption 18
includes any labor costs provided by the real property contractor, including 19
employees' wages, or labor purchased from a third party that would otherwise 20
be included in the definition of "purchase price." 21
(62) An item, including repair, maintenance, and installation services, purchased 22
or used to fulfill a service contract taxable under this Article if the purchaser 23
of the contract is not charged for the item. This exemption does not apply to 24
the purchase of tangible personal property or certain digital property used to 25
fulfill a service contract for real property where the charge being covered 26
would otherwise be subject to tax as a real property contract. For purposes of 27
this exemption, the term "item" does not include a tool, equipment, supply, or 28
similar tangible personal property that is not deemed to be a component or 29
repair part of the tangible personal property, real property, or certain digital 30
property for which a service contract is sold to a purchaser. 31
(62a) A replacement item, a repair part, or repair, maintenance, and installation 32
services item or repair part used to maintain or repair tangible personal 33
property or a motor vehicle pursuant to a manufacturer's warranty or a dealer's 34
warranty. For purposes of this subdivision, the following definitions apply: 35
a. Dealer's warranty. – An explicit warranty the seller of an item extends 36
to the purchaser of the item as part of the purchase price of the item. 37
b. Manufacturer's warranty. – An explicit warranty the manufacturer of 38
an item extends to the purchaser of the item as part of the purchase 39
price of the item. 40
(62b) The amount of repair, maintenance, and installation services for a boat, an 41
aircraft, or a qualified jet engine for which the purchaser elects for the seller 42
to collect and remit the tax due under G.S. 105-164.27A(a3). 43
… 44
(67) Towing services, provided the charge is separately stated on the invoice or 45
other documentation provided to the purchaser at the time of the sale. 46
… 47
(73) Sales of a digital audio work or digital audiovisual work that consists of 48
nontaxable service content when the electronic transfer of the digital audio 49
work or digital audiovisual work occurs contemporaneously with the 50
provision of the nontaxable service in real time. 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 13
…." 1
SECTION 2.(b) G.S. 105-164.13E reads as rewritten: 2
"§ 105-164.13E. Exemption for farmers. 3
(a) Exemption. – A qualifying farmer is a person who has an annual income from farming 4
operations for the preceding taxable year of ten thousand dollars ($10,000) or more or who has 5
an average annual income from farming operations for the three preceding taxable years of ten 6
thousand dollars ($10,000) or more. For purposes of this section, the term "income from farming 7
operations" means sales plus any other amounts treated as gross income under the Code from 8
farming operations. A qualifying farmer includes a dairy operator, a poultry farmer, an egg 9
producer, and a livestock farmer, a farmer of crops, a farmer of an aquatic species, as defined in 10
G.S. 106-758, and a person who boards horses. A qualifying farmer may apply to the Secretary 11
for an exemption certificate number under G.S. 105-164.28A. The exemption certificate expires 12
when a person fails to meet the income threshold for three consecutive taxable years or ceases to 13
engage in farming operations, whichever comes first. 14
Except as otherwise provided in this section, the items exempt under this section must be 15
purchased by a qualifying farmer or conditional farmer and used by the qualifying or conditional 16
farmer primarily in farming operations. For purposes of this section, an item is used by a farmer 17
for farming operations if it is used for the planting, cultivating, harvesting, or curing of farm 18
crops, in the production of dairy products, eggs, or animals, or by a person who boards horses. 19
The items that may be exempt from sales and use tax under this section are: 20
… 21
(10) Repair, maintenance, and installation services. 22
… 23
(c1) Services for Farmer. – A qualifying item listed in subdivision (6) of subsection (a) of 24
this section purchased to fulfill a service for a person who holds a qualifying farmer exemption 25
certificate or a conditional farmer exemption certificate issued under G.S. 105-164.28A is 26
exempt from sales and use tax to the same extent as if purchased directly by the person who holds 27
the exemption certificate. A person that purchases one of the items allowed an exemption under 28
this subsection must provide an exemption certificate to the retailer that includes the name of the 29
qualifying farmer or conditional farmer and the exemption number issued to the qualifying 30
farmer or conditional farmer by the Department pursuant to G.S. 105-164.28A. A person that 31
purchases an item exempt from tax pursuant to this subsection must maintain records to 32
substantiate that an item is used to provide a service for a person who holds a qualifying farmer 33
exemption certificate or a conditional farmer exemption certificate. 34
…." 35
SECTION 2.(c) G.S. 105-164.13F reads as rewritten: 36
"§ 105-164.13F. Exemption for wildlife managers. 37
… 38
(b) Exemption. – Certain items purchased by a wildlife manager and used primarily for 39
wildlife management activities may be exempt from sales and use tax under this section. The 40
items that may be exempt under this section are: 41
… 42
(8) Repair, maintenance, and installation services for items exempt under this 43
subsection. 44
… 45
(e) Services for Wildlife Manager. – An item exempt under subsection (b) of this section 46
purchased to perform a service for a person who holds a wildlife manager exemption certificate 47
issued under G.S. 105-164.28A is exempt from sales and use tax to the same extent as if 48
purchased directly by the person who holds the exemption certificate. A person that purchases 49
one of the items allowed an exemption under this subsection must provide an exemption 50
certificate to the retailer that includes the name of the wildlife manager certificate holder and the 51 General Assembly Of North Carolina Session 2025
Page 14 Senate Bill 303-First Edition
exemption number issued to the wildlife manager by the Department pursuant to 1
G.S. 105-164.28A. A person that purchases an item exempt from tax under this subsection must 2
maintain records to substantiate that it is used to provide a service for a person who holds a 3
wildlife manager exemption certificate. The records must be maintained for at least three years." 4
5
PART III. SALES TAX DEFINITION UPDATES 6
SECTION 3. G.S. 105-164.3 reads as rewritten: 7
"§ 105-164.3. Definitions. 8
The following definitions apply in this Article: 9
… 10
(25) Bundled transaction. – A retail sale of two or more distinct and identifiable 11
items, at least one of which is taxable and one of which is nontaxable, for one 12
nonitemized price. The term does not apply to real property or services to real 13
property. property. Items are not sold for one nonitemized price if an invoice 14
or another sales document made available to the purchaser separately 15
identifies the price of each item. A bundled transaction does not include the 16
retail sale of any of the following: 17
a. An item and any packaging that accompanies the item and is exempt 18
under G.S. 105-164.13(23). 19
b. A sale of two or more items whose combined price varies, or is 20
negotiable, depending on the items the purchaser selects. 21
c. A sale of an item accompanied by a transfer of another item with no 22
additional consideration. 23
d. An item and the delivery or installation of the item. 24
e. An item and any service necessary to complete the sale. 25
… 26
(31) Capital improvement. – One or more of the following: 27
… 28
c. Installation of a transmission, distribution, or other network asset on 29
land owned by a service provider or on a right-of-way or easement in 30
favor of a service provider, notwithstanding that any separately stated 31
charges billed to a customer for repair, maintenance, and installation 32
services or a contribution in aid of construction are included in the 33
gross receipts derived from services subject to the combined general 34
rate under G.S. 105-164.4. For purposes of this sub-subdivision, the 35
term "service provider" means a person, including a governmental 36
entity, who provides any of the services listed in this sub-subdivision, 37
and the term "governmental entity" means a State agency, the federal 38
government, or a governmental entity listed in G.S. 105-164.14(c). 39
The services are: 40
1. Telecommunications service or ancillary service. 41
2. Video programming. 42
3. Electricity or piped natural gas. 43
4. Water or sewer service. 44
… 45
e. Painting or wallpapering of real property, except where painting or 46
wallpapering is incidental to the repair, maintenance, and installation 47
services.property. 48
f. Replacement or installation of a septic tank system, siding, roof, 49
plumbing, electrical, commercial refrigeration, irrigation, sprinkler, or 50
other similar system. The term does not include the repair, 51 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 15
replacement, or installation of electrical or plumbing components, 1
water heaters, gutters, and similar individual items that are not part of 2
new construction, reconstruction, or remodeling. 3
g. Replacement or installation of a heating or air conditioning unit or a 4
heating, ventilation, or air conditioning system. The term does not 5
include the repair, replacement, or installation of gas logs, water 6
heaters, pool heaters, and similar individual items that are not part of 7
new construction, reconstruction, or remodeling. 8
… 9
k. An addition or alteration to real property that is permanently affixed 10
or installed to real property and is not an activity listed in subdivision 11
(225) of this section as repair, maintenance, and installation 12
services.property. 13
… 14
(87) Facilitator. – An accommodation facilitator, an admission facilitator, or a 15
service contract facilitator.facilitator or an admission facilitator. 16
… 17
(95) Gross sales. – The sum total of the sales price of all sales of tangible personal 18
property, digital property, and services.property and digital property. 19
… 20
(113) Item. – Tangible personal property, digital property, or a service, property or 21
digital property unless the context requires otherwise. 22
… 23
(137) Mixed transaction contract. – A contract that includes both a real property 24
contract for a capital improvement and repair, maintenance, and installation 25
services for real property that are not related to the capital improvement. 26
… 27
(159) Nonresident retail or wholesale merchant. – A person who does not have a 28
place of business in this State, is registered for sales and use tax purposes in a 29
taxing jurisdiction outside the State, and is engaged in the business of 30
acquiring, by purchase, consignment, or otherwise, tangible personal property 31
or certain digital property and selling the property outside the State or in the 32
business of providing a service.State. 33
… 34
(211) Real property management services. – Any of the following activities: 35
a. Hiring and supervising employees for the real property. 36
b. Providing a person to manage the real property. 37
c. Receiving and applying revenues received from property owners or 38
tenants of the real property. 39
d. Providing repair, maintenance, and installation services to comply 40
with obligations of a homeowners' association or a landlord under a 41
lease, rental, or management agreement. 42
e. Arranging for a third party to provide repair, maintenance, and 43
installation services. 44
f. Incurring and paying expenses for the management, repair, and 45
maintenance of the real property. 46
g. Handling administrative affairs for the real property. 47
… 48
(219) Remodeling. – A transaction comprised of multiple services performed by one 49
or more persons to restore, improve, alter, or update real property that may 50
otherwise be subject to tax as repair, maintenance, and installation services if 51 General Assembly Of North Carolina Session 2025
Page 16 Senate Bill 303-First Edition
separately performed. property. The term includes a transaction where the 1
internal structure or design of one or more rooms or areas within a room or 2
building are substantially changed. The term does not include a single service 3
that is included in repair, maintenance, and installation services. The term 4
does not include a transaction where the true purpose is repair, maintenance, 5
and installation services no matter that another service included in repair, 6
maintenance, and installation services is performed that is incidental to the 7
true purpose of the transaction; examples Examples include repair of 8
sheetrock that includes applying paint, replacement of cabinets that includes 9
installation of caulk or molding, and the installation of hardwood floors that 10
includes installation of shoe molding. 11
(221) Remote sale. – A sale of an item ordered by mail, telephone, Internet, mobile 12
phone application, or another method by a retailer who receives the order in 13
another state and delivers the item or makes it accessible to a person in this 14
State or causes the item to be delivered or made accessible to a person in this 15
State or performs a service sourced to this State. It is presumed that a resident 16
of this State who makes an order was in this State at the time the order was 17
made. 18
… 19
(225) Repair, maintenance, and installation services. – The term includes the 20
activities listed in this subdivision and applies to tangible personal property, 21
motor vehicles, certain digital property, and real property. The term does not 22
include a service used to fulfill a real property contract taxed in accordance 23
with G.S. 105-164.4H. The included activities are: 24
a. To keep or attempt to keep property or a motor vehicle in working 25
order to avoid breakdown and prevent deterioration or repairs. 26
Examples include to clean, wash, or polish property. 27
b. To calibrate, refinish, restore, or attempt to calibrate, refinish, or 28
restore property or a motor vehicle to proper working order or good 29
condition. This activity may include replacing or putting together what 30
is torn or broken. 31
c. To troubleshoot, identify, or attempt to identify the source of a 32
problem for the purpose of determining what is needed to restore 33
property or a motor vehicle to proper working order or good condition. 34
The term includes activities that may lead to the issuance of an 35
inspection report. 36
d. To install, apply, connect, adjust, or set into position tangible personal 37
property or certain digital property. The term includes floor refinishing 38
and the installation of carpet, flooring, floor coverings, windows, 39
doors, cabinets, countertops, and other installations where the item 40
being installed may replace a similar existing item. The replacement 41
of more than one of a like-kind item, such as replacing one or more 42
windows, is repair, maintenance, and installation services. The term 43
does not include an installation defined as a capital improvement under 44
subdivision (31)d. of this section and substantiated as a capital 45
improvement under G.S. 105-164.4H(a1). 46
e. To inspect or monitor property or install, apply, or connect tangible 47
personal property or certain digital property on a motor vehicle or 48
adjust a motor vehicle. 49
… 50 General Assembly Of North Carolina Session 2025
Senate Bill 303-First Edition Page 17
(235) Sale or selling. – The transfer for consideration of title, license to use or 1
consume, or possession of tangible personal property or certain digital 2
property or the performance for consideration of a service. The transfer or 3
performance may be conditional or in any manner or by any means. The term 4
applies to the following: 5
… 6
g. A service contract. 7
… 8
(245) Service contract. – A contract where the obligor under the contract agrees to 9
maintain, monitor, inspect, repair, or provide another service included in the 10
definition of repair, maintenance, and installation services to certain digital 11
property, tangible personal property, or real property for a period of time or 12
some other defined measure. The term does not include a single service 13
included in repair, maintenance, or installation services, but does include a 14
contract where the obligor may provide a service included in the definition of 15
repair, maintenance, and installation services as a condition of the contract. 16
The term includes a service contract for a pool, fish tank, or similar aquatic 17
feature and a home warranty. Examples include a warranty agreement other 18
than a manufacturer's warranty or dealer's warranty provided at no charge to 19
the purchaser, an extended warranty agreement, a maintenance agreement, a 20
repair agreement, or a similar agreement or contract. 21
(247) Service contract facilitator. – A person who contracts with the obligor of a 22
service contract to market the service contract and accepts payment from the 23
purchaser for the service contract. 24
…." 25
26
PART IV. EFFECTIVE DATE 27
SECTION 4. This act becomes effective July 1, 2025, and applies to services 28
provided on or after that date. 29