Free guide for contractors
Do contractors charge sales tax in North Carolina?
General information, not tax advice. Tax rules change and depend on the details of each job. Confirm how they apply to your business with your accountant or the state's revenue department before relying on them.
NC North Carolina
Depends on the jobIt depends on the job. North Carolina taxes repair, maintenance and installation work; a capital improvement, such as a remodel, is not taxed.
North Carolina taxes repair, maintenance and installation (RMI) services to real property at the general rate. A real property contract for a capital improvement is different: the contractor is the consumer of the materials and must not separately state any tax on the invoice. Tax shown on a real property contract is an erroneous collection.
Capital improvements include new construction, reconstruction and remodeling, roofs, siding, plumbing and electrical systems, HVAC, painting or wallpapering (unless it is incidental to a repair, maintenance or installation service), decks, driveways and landscaping. Replacing more than one like-kind item, such as windows, doors, flooring, cabinets or countertops, is RMI unless it is substantiated as a capital improvement.
A capital improvement can be substantiated with records or with an affidavit of capital improvement (Form E-589CI); the person receiving the affidavit is protected unless there is fraud. On a mixed contract, if the unrelated RMI part is 25% of the price or less, the whole job is a real property contract; above 25%, the RMI part is taxed.
Cleaning of real property, pest control (the application of pesticides to real property), road, driveway and sidewalk services, and trash removal are exempt RMI.
It turns on: whether the work is a capital improvement or repair, maintenance and installation; for like-kind replacements, whether they are part of a capital improvement; on a mixed contract, whether the RMI part is more than 25% of the price.
Watch out for
- Mecklenburg County added a 1% local sales and use tax effective July 1, 2026 (NCDOR, Important Notice: Mecklenburg County Sales and Use Tax Increase).
- The Department publishes an item-by-item chart of taxable RMI versus capital improvements (NCDOR, Services to Real Property Taxability Chart).
“shall not separately state any amount for tax for a real property contract”N.C.G.S. 105-164.4H(a)