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On August 5, 2024, the North Carolina Department of Revenue (NCDOR) issued an Important Notice regarding documentations requirements for general contractors doing business in the state. The Notice reminds general contractors that NCDOR requires NC sales tax must be paid on all materials consumed a real property construction job, and that the general contractor has a legal obligation to ensure its subcontractors are also compliant with these rules. Any party involved in a real property construction project where NCDOR determines sales tax wasn’t paid on job materials will face Joint & Several Liability on the unpaid taxes.
NCDOR provides a documentation method for general contractors to confirm that their subcontractors are handling the NC sales tax on materials appropriately. The general contractor may require its subs to complete NCDOR Form 589P, “Affidavit of Tax Paid by Real Property Contractor”, which confirms the subcontractor paid all applicable taxes. Click the link below for the full Notice.
NCDOR Important Notice: https://www.ncdor.gov/important-notice-affidavit-tax-paid-real-property-contractorpdf/open
NCDOR has created a short video explaining how to complete NCDOR Form E-589P, “Affidavit of Tax Paid by Real Property Contractor”
GreerWalker Takeaway
Over the last handful of years we’ve seen NCDOR provide extensive guidance to real property contractors and repair trades about the state’s sales tax rules. In 2018-2019, NC law was changed to expand the state’s sales tax to repair, maintenance and installation services. At that time NCDOR developed Form E-589CI, “Affidavit of Capital Improvement”, which is still a required method to document that your construction project meets the state’s standard as real property construction.
This most recent guidance highlights NCDOR’s continued focus on ensuring both general contractors and their subcontractors are paying NC sales tax on materials consumed in a real property construction project. The Notice clearly outlines NCDOR’s intention to pursue collections on any unpaid sales tax from essentially any party involved in a project, if required. Further details on how NCDOR defines Joint and Several Liability are below.
“Joint and Several Liability – When an item becomes a part of real property in the State, the following people are jointly and severally liable for any use tax due on the item:
- real property owner
- the lessee
- the real property contractor
- the retailer-contractor
- the subcontractor.
As result, the Department can hold all the listed persons liable for any use tax due on items that a real property contractor purchases, installs, or applies to real property as part of a real property contract.”
If your business performs construction-related services in North Carolina, please take a moment to consider this NCDOR Important Notice and develop a process to collect and retain NC FormsE-589P, “Affidavit of Tax Paid by Real Property Contractor” for any party working on your project.
For question or more information, please contact your tax advisor.
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About the Author
Jason Pritchard is a partner in GreerWalker’s Greenville, SC tax practice. Jason joined GreerWalker in 2017. Prior to joining the firm, Jason was most recently responsible for the oversight of state & local tax accounting and compliance at a global top five financial institution.
In addition, Jason spent 10+ years at a Fortune 50 retail company where he was responsible for all aspects of federal, state & international taxation. Jason has 20+ years of experience evaluating and resolving US federal and state audit issues, the financial evaluation of proposed mergers and acquisitions and in the development and implementation of strategic business technology. Jason also works with clients to identify and implement federal, state & local tax and development incentives.
For questions and guidance about these changes, reach out to Jason at jason.pritchard@greerwalker.com or (864) 752-0084.
The information contained herein is general in nature and based on authoritative guidance that is subject to change. Neither GreerWalker LLP nor GreerWalker Corporate Finance LLC (collectively, “GreerWalker”) guarantee the accuracy or completeness of any information and are not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. GreerWalker assumes no obligation to inform the reader of any changes in tax laws, regulations, accounting standards, or other factors that could affect information contained herein. This publication does not, and is not intended to provide legal, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws or accounting guidance to their particular situation. Any tax analysis in this publication is not advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
