The sweeping tax overhaul approved in July is leading to mounting questions months later.
A N.C. Department of Revenue official told a legislative oversight committee Tuesday that it is still trying to determine how to interpret a variety of provisions in the tax bill Gov. Pat McCrory signed into law in July.
One affects college students meal plans. Since 1957 the plans were exempt from sales tax but the bill repealed the tax break for university dining halls. At N.C. State University, for example, the average cost per meal will rise 41-cents for the 9,100 students on the plan, according to The Technician, the student newspaper. All first year students who live on campus are required to have a meal plan. The state estimates it will generate about $14 million in new revenue for the state when it takes effect Jan. 1.
But even as the meal plan bills for the spring semester are being sent to parents and students, the state is unsure who is responsible for collecting the tax: the students, the university or the third-party vendors that administer the meal plans. DOR is looking to lawmakers for clarification but no decisions were made Tuesday.
Another area of confusion, state officials said, is the new tax on entertainment, such as movies and concerts. The bill exempted state attractions but it’s still unclear what qualifies for the tax break and which entities will have to pay the newly imposed sales tax on tickets.
State Rep. Becky Carney, a Charlotte Democrat, said lawmakers also are getting an earful from small community theater and musical organizations who will have to remit the sales tax to the state for the first time. The area created so much consternation, the Revenue Laws Committee decided to create a subcommittee to look at the problem.
Eric Wayne, the director of the Sales and Use Tax Division at the Revenue department, said questions are rising about equitable treatment on how the new sales taxes on certain service contracts for tangible personal property will work.
For instance, a customer will pay sales tax on a new car battery but not its installation, because labor repairs are exempt. Yet an extended warranty for the battery will include sales tax starting Jan. 1 because it counts as a service contract.
Likewise, a hot water heater will include sales tax at the purchase point and the installation is exempt. But a service contract would also be exempt from sales tax in this instance because it is part of real property, a home.
The committee meeting ended without resolution on a number of the questions and the lawmakers are scheduled to reconvene next month.