Bill
SB 303
Repeal North Carolina’s service tax and align the tax code, removing taxes on services and reshaping how retailers, contractors, software vendors, and consumers are taxed.
Status (from provided materials)
- Introduced: March 18, 2025 (first edition).
- Referred to: Rules and Operations of the Senate (per bill header).
- Current status in the packet: bill text and conforming statutory edits circulated; legislative action beyond introduction not shown in the packet.
Purpose / Intent
- The bill’s stated objective is to repeal the State’s tax on services (commonly described here as the “service tax” / privilege tax on retail service transactions) and to make the necessary conforming changes throughout the North Carolina statutory sales/privilege tax code so the law is internally consistent after repeal.
Key provisions and statutory changes (high level)
- Removes or revises statutory language that treats various service categories as taxable retail sales. The bill updates multiple provisions in Chapter 105 (the tax code) to reflect the repeal and to provide clarifying rules where needed. Major topics addressed in the draft text include:
- G.S. 105‑164.4 (Tax imposed on retailers and certain facilitators)
- Currently lists categories of taxable sales including repair/maintenance/installation services (both to tangible personal property and to real property) and service contracts. The bill revises this section to reflect the repeal of the service tax (removes or alters service categories as taxable items).
- G.S. 105‑164.4B (Sourcing principles)
- Adjusts or clarifies sourcing rules for services (for example, rules on where a computer/software service or renewal of prewritten software is “sourced”) so that remaining sourcing and administration rules align with the repeal.
- G.S. 105‑164.4D (Bundled transactions)
- Revises rules for how bundled transactions that include services are allocated, including thresholds and whether purchase or sales price is used to test thresholds; conforms allocation rules to the post‑repeal framework.
- G.S. 105‑164.4H (Real property contracts)
- Clarifies treatment of real‑property contractors, substantiation requirements (e.g., affidavits of capital improvement), and the tax treatment of mixed‑transaction contracts versus real property contracts — aligning these rules with the repeal and the redefined taxable base.
Who would be affected
- Businesses and individuals currently subject to the service tax:
- Retailers and service providers who sell repair, maintenance, installation services, service contracts, and similar services.
- Real property contractors and subcontractors (construction, remodeling, installation).
- Software vendors and service‑contract providers (e.g., renewal of prewritten software contracts).
- Consumers who pay tax as part of service charges would no longer be charged that state tax.
- NC Department of Revenue (DOR): rulemaking, guidance, audit practice and collection processes must be revised.
- Local governments and other recipients of state distributions: potential reduction in tax receipts may affect budgets that rely (directly or indirectly) on collections.
Practical and administrative effects
- Tax compliance and reporting: Sellers will need guidance and system changes (billing systems, point‑of‑sale software, tax calculation engines) to stop collecting the service tax and to apply any remaining taxes properly (e.g., on tangible goods still taxable).
- Sourcing, nexus and allocation rules: Even with repeal, certain statutory sourcing, bundling and contractor substantiation rules remain important for determining whether a transaction is taxable under other provisions (e.g., goods, tangible personal property sold as part of a contract).
- Transitional and enforcement issues: DOR will need to issue transition guidance, audit policy changes, and possibly address refunds/credit for recently collected taxes.
Fiscal impact
- No fiscal estimates are provided in the materials supplied. Repealing a tax on services generally reduces state (and potentially local) tax revenues; the magnitude depends on:
- The breadth of services removed from the tax base,
- The share of total collections currently attributable to service categories,
- Behavioral responses (e.g., price changes, increased demand).
- The bill text does not include appropriation provisions or explicit revenue replacement measures.
Implementation / timeline
- The draft text provided does not state an effective date. Typical possibilities:
- Effective on enactment; or
- Effective at a future date specified in conferring sections.
- If enacted, DOR would need to issue administrative guidance and update systems before the effective date.
Observations / issues to watch
- Breadth of repeal: Does the repeal eliminate tax on all services or only specific categories? The bill’s clean‑up edits suggest a broad removal of “service” as a taxable category; confirm final enacted language to identify any retained taxable service categories (or exceptions).
- Interaction with federal law and local fees: Some local revenues or statutory programs may rely on State tax receipts; evaluate any downstream fiscal consequences.
- Transitional provisions and taxpayer protections: Watch for refund/credit provisions for taxes collected pre‑enactment, and for clear documentation/affidavit rules (e.g., for capital improvements) to reduce taxpayer disputes.
Where to read the bill
- The text excerpted in the materials provided shows proposed edits to G.S. 105‑164.4 and related sections; for final language and status consult the North Carolina General Assembly bill site or the NC Legislative Information System once the bill progresses.
Preparedness note
- Affected businesses should monitor the bill’s progress, consult tax counsel, and assess billing and accounting system changes. State and local budget offices should request fiscal estimates from nonpartisan fiscal staff if the bill advances.
Compiled from official sources — confirm details with the bill’s official record.
Sign in to ask a question.
