NC Homeowner and Condominium Associations Required to Pay NC Sales and Use Tax Effective January 1, 2017: Association Management Group Advises Associations to Budget Accordingly

The president of Association Management Group (AMG) has a word of caution to his communities: “Plan for an additional tax in your 2017 budget.” According to AMG President Paul Mengert, on January 1 the State of North Carolina will require sales tax to be added to the cost of labor for repairs, maintenance and installation. This is a new expansion of the sales tax that will affect many homeowners associations (HOAs) and community associations, increasing repair costs by 4.75% to 7.5%, depending upon the city and county where the work is performed.

Communities already pay sales tax on materials and parts.  In most cases, vendors will be required by law to collect the sales tax from associations.

Mengert noted the good news is that the effect on most associations should be minimal. “For example, in the most expensive NC tax jurisdiction, an annual $10,000 maintenance budget will increase $750 because of the new sales and use tax,” he explained. The NC Department of Revenue is developing guidelines that are expected to be published in November 2016. The preliminary indications are the new law will apply as follows:

The New Sales Tax Will Apply To:

* Labor for most common repairs

* All pool services, including cleaning, tile repair and monitoring

                                                                             

The New Sales Tax Will Not Apply To:

* Janitorial services

* Repair of parking lots and sidewalks

* Security systems

* Pest control

* Landscaping

* Work requiring a North Carolina building permit

Trevor Johnson, NC Department of Revenue Director of Public Affairs, reminds taxpayers that the expansion of sales taxes is one piece of a larger tax reform effort which started in July 2013. “This effort also includes the lowering of individual and corporate tax rates, as well as a larger standard deduction option for all taxpayers,” he said.  Johnson pointed out that the changes were not due to a budget shortfall, and that all monies received from sales taxes will continue to be split between the state (General Fund) and the counties.

                                             

According to Henry W. Jones, Jr., Attorney at Law at Jordan Price in Raleigh, news of this sales tax on labor is important to HOAs for one simple reason: preparedness. “This time of year when most volunteer boards of community associations are writing up their budgets for 2017, it’ll be smart to go ahead and add six to eight percent to the repair and maintenance line item,” he advised. “Yes, we don’t have all the specifics just yet, but be a good steward of your association and go ahead and factor in this sales tax now. It’s better to have money left over at the end of year instead of not accounting for it.”

Once the guidelines are published later this fall, AMG will share more information. “While we did not encourage NC legislators to expand this tax, it is now our job to help clients prepare for it and to support them in meeting the law,” Mengert concluded. “Part of AMG’s service is to help our clients stay on top of emerging issues that may affect their communities and to make it as easy as possible for them to meet the challenges of change effectively and wisely.”

For more information, contact jpaz@amgworld.com. For details about the new sales tax, visit the NC Department of Revenue website: www.dor.state.nc.us, or call toll-free 1-877-252-3052.

About AMG:  AMG is a professional community association management company dedicated to building effective community associations. AMG guides and assists executive boards to help protect the association's interests, enhance the lives of community members and improve the property values in the community. With offices throughout the Carolinas in Greensboro, Winston-Salem, Charlotte and Raleigh, NC, and Greenville and Aiken, SC, AMG is a knowledgeable partner in enforcing community governing documents with a proven set of processes and techniques, and supporting communities with a broad range of services which can be tailored to individual community needs. Association Management Group, Inc. is a locally Accredited Business by the BBB and is a nationally Accredited Association Management Company (AAMC) by the Community Associations Institute. For more about AMG, visit www.amgworld.com.