North Carolina SB 303: Repeal Service Tax.

Bill Text

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 CONFORMING 2
CHANGES NECESSARY TO EFFECTUATE THE REPEAL. 3
The General Assembly of North Carolina enacts: 4
5
PART I. REPEAL OF SERVICE TAX AND ATTENDANT CONFORMING CHANGES 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
"