Benjamin Franklin said that “in this world nothing can be said to be certain, except death and taxes.” As community association attorneys, we’re not CPAs. And every association has different circumstances. Having said that, it is almost certain that due to a shift in how North Carolina taxes certain services, association budgets will need to be increased.
North Carolina has traditionally relied heavily upon income taxes as a revenue stream. Without getting into any pro or con political discussions, the NC General Assembly over the past several years has begun shifting to a model of lower personal and corporate income taxes, but adding sales taxes to services. However, the process didn’t hit all services equally, but was based upon the type of service and even whether or not the service provider also sold retail products. All of this led to significant confusion about what was taxed and what was not.
In 2016 the General Assembly further increased the number and types of services taxes. To add to the confusion, sales taxes in North Carolina vary by county and range from 6.75% to 7.5%. Without question there are currently more questions than answers. As of this date, the NC Department of Revenue has not yet issued clear guidelines on which services used by community associations are subject to sales tax. Since the burden (and the penalty) for not collecting taxes falls to the service provider, it is likely that in the event of a question, a service provider will err on the side of collecting sales tax. (REMINDER: This is not a tax paid by community associations. Instead, invoices from service providers will be higher because of included sales tax.)
With so few answers, how do community association plan? Well, speak to your community manager and/or accountant, who should have the best grasp of your association’s budget and past expenses. Also, keep an eye out for NC CAI tax bulletins/programs and future NC Department of Review guidance on the taxing of services (likely at the NC Department of Revenue Sales and Use Tax FAQ Page).
Our expectation is that most associations will experience increased service expenses of about 5%, but that percentage could be higher or lower based on specific circumstances. If any of our attorneys can be of help with this or other questions, let us know.