[BLANK_AUDIO] [BLANK_AUDIO] Ladies and gentlemen, members of the Senate let's again in a meeting this morning Finance Committee we've got two hours today we're gonna try to get through all the bills that we've got listed. So we have two hours. Senator Ford I see that look on your face, but yes we're scheduled for two hours. Sergeant at arms today we want to recognize Jim Hamilton, Francis Patterson and Steve Wilson. Thank you gentlemen, you always do a great job for us. I don't have a page list here with me, but if we have pages raise your hand. I don't believe we've got them here. [BLANK_AUDIO] And one thing we are saving time for, we've invited some of our colleagues in the house is on sales tax issues. And we will certainly welcome them when they get here and we'll leave that down on the agenda as it is. And the first bill today that we have is my local bill. And I'll ask Senator Rucho to take over. >> Thank you for coming. Senator Tillman and that one is going to require a PCS Senator Tillman, Senator Raven makes a motion that we accept the PCS for discussion all in favor please say aye, oppose Nay, aye's have it. Senator Tillman, in a very brief manner explain what your bill does? >> Well sir I had a joke [INAUDIBLE] I could cut that out. I'm gonna ask Staff to briefly run through this. This is a permission to do a quarter census/g sales tax in North County to go only to schools [INAUDIBLE] let them explain this Staff, can you help us? >> Who's that? Identify yourself please. >> Denise Canada from fiscal research. Under current statues, counties are allowed to levy an additional quarter cent sales in used tax if it is approved by referendum, and the funds can be used for any purpose. This bill Bill would restrict more counties usage of Article 46, sales tax revenues, if in fact it were approved by referendum. Specifically, Moore county would only be allowed to use the funding for public school construction, and the funds could not replace any money already being spent on public school construction. So it would supplement the and not supplant. >> Thank you and that's what it does supplements other than supplants so it's going on top of and the other funding cannot be reduced and it's education only which is a little different. >> Members of the committee, if you remember correctly, this was part of our effort to try to get clarity, it's not the comprehensive issue dealing with the setting the 2.75 sales tax. But this does give some flexibility for Moore county and other counties to take advantage of it. Senator Heist, question. >> Thank you Mr. Chairman. Could someone just explain to me what's the difference in what's being allowed here, and what's being allowed under current law that's coming in? >> Denise Canada, Fiscal research. Right now under current law, any county that can get a quarter cent additional sales tax approved by referendum, may levy that additional quarter cent and may use that for any public purpose. This restricts Moore County in how it could use its funds, if the tax were approved by referendum. >> It basically allows for a county to say that we're gonna use this exclusively for education from what would normally be general fund, it might help in the passage of a a bond, I got Senator McKissick. >> Appropriate time I'll move for a favorable report but Senator Tillman let me ask you this, it looks like they had a referendum this past March that was defeated. Maybe you know much about the reason why it got defeated at that time? Was it lack or failure to have this type of narrowing of the purpose for which the money would be used.
>> The commissioners tell me and I'm led to believe that the people fought for that money could and would go anywhere which it could. They wanted it to go specifically to schools and the only way to get that is to put it in the question on the ballot. So that's to ensure that it goes nowhere else. >> Appropriate time move for a favorable report. >> Okay, any other questions member of the committee, okay, seeing none Senator McKissick Makes a motion for a favorable report on senate bill 727 PCS an unfavorable to the original bill. Additional question questions? All those in favor say aye. >> Aye. >> Opposed nay, the ayes have it. Next person will be senate bill 733 Senator Smith. >> Thank you senator, you are a great patriot. This bill is designed to help the small town of Proctorville in Southern Robinson County, population 117 that has a sewer system that now serves about 56 residences. However there are six residents that have not paid and they need to have someway to get them to pay their bills. >> Senator Smith >> Yes, sir >> while you're here, I would stop, I see a motion for without other questions, I see two motions. I saw Senator Ford forward first and we'll have a double motion here, Senator [UNKNOWN] question, all in favor, aye, any opposed, you're done. >> Thank you. >> Next bill we have on the docket is senate senate bill 852, town of Bakersville, town of Clyde, the annexation- >> Thank you Mr. Chairman. We have a request from the town of Bakersville, there is a piece of property that they no longer want in the city limits and the property owner also no longer wants to be in the city limits. They're in agreement so we're pushing forth that legislation now. Senator Davis also added the town of Clyde in Haywood county, same circumstances. >> Thank you Senator Heis that's about as brief as you could make it. Senator Cook. > Move for a favorable. >> We got a motion for a favorable to any other discussion, seeing none, all in favor aye. >> Aye. >> Any opposed, bill passes. What's the population of [INAUDIBLE] All right Okay. [INAUDIBLE. Barefoot. [BLANK_AUDIO] >> Thank you Mr. Chairman. This bill has come to us through the education and the J1 committees. I can give you a description of the bill, but as it pertains to finance, what it does is it allows the state Board of Education to collect the fee necessary to do a nationalized background checks on applicants for life insurance in the state of North Carolina. And it also gives the ability for local boards of education to cover that cost if they see fit. >> Thank you Senator Barefoot We have questions? Seeing none, None, I have that motion over there that David Hall invented and I perfected from Senator Raymond for favorable report. Questions? All in favor, I. >> I. >> Any opposed? Bill passed. We're going to skip down and put layers on the Senate Bill 870 on the sales tax issue [INAUDIBLE] We will hold it one hand down and we will take the other three floors, so this sales tax will take a little time. So we wanna get these others quickly. Senate Bill 874 of the senate [INAUDIBLE] O.T. Senator Raymond. >> Thank you sir [SOUND] This Senate bill 874 is the exact bill that passed unanimously through the senate just before crossed over can't hangup during cross over. So it's been re-submitted and refiled. It also wants to stay in local with No descending votes to two of the counties in my district.[BLANK_AUDIO]. >> I'm looking around and am seeing [INAUDIBLE] from Senator Tom
Davis question concerning the town All in favor I. >> I. >> Any oppose. Bill passed. Thank you senator. Senate Bill 875 the town of Sun Set Beach being an accession. Senator Raven. >> Senator we can't hear you. >> All right I'm gonna speak up. Thank you Mr. Chairman and the members. The first bill that I will be running this morning is to DNX three pieces property from the town of Sunset Beach. That's fairly short of bill and that's what it does. One of the pieces is at the east end of the beach, one is at the west end of the beach and one is that the main way. This Bill has not been without some contention However, I think that most of that has been a revealed result shortly.So I would appreciate your support on this. >> Thank you Senator Ruben. Senator Cook is out of motion for a favorable. >> It is. >> All right you have any other Other questions saying none. All in favor I. >> I. >> Any oppose. Passes. >> Thank you Mr Chairman I have another bill. >> Yes Sir. >> When your ready. >> Yes Sir if you go right ahead with the other Sunset beach bill. >> Thank you. Ladies and gentle men the committee of this house Bill 469 This also involves the town of Sunset Beach and comes with their blessings, and what this bill does is that it allows the town of Sunset Beach to take the proceeds from the parking meters on public streets and use them for public purposes. This has been done as you can see from the bill summary in [UNKNOWN] beach both for Carolina beach, [UNKNOWN] beach [UNKNOWN] beach. Durham chappel hill in Raleign. So, thats again [UNKNOWN] charter has to be modified in order tfor them to use the process of the purpose. [UNKNOWN] Mr. Chairman. >> Senator [UNKNOWN], [UNKNOWN] down in your home down for the last Three four days, called a few favors and heard a whole lot of comment about you. Some of it was good. All right. We've got the bill before you see a motion favor of report from Senator Cook. Questions? All right. Got a motion. All in favor, I. >> I. >> Any opposed? All right. Thank you. >> Now, I'm going to call on a good Senator Rucho for the sales tax issue and we'll have a discussion on that and we'll have a discussion on that and we'll take the time we need so that we get a full understanding of what we're trying to do. Thank you. >> Thank you Mr. Chairman and members of the committee. And Some of our house members and some of the members from the senate that were kind enough to come today to try to get a little bit enlightenment on the sales tax clarification issue. Ladies and gentlemen, we have been working diligently in an effort to lower the personal income tax rates Which we are doing either by lowering the and or increasing the zero bracket or standard deduction in squeezing that rate of the more money can be put in the pockets of middle class forks and the like and in doing so. Our effort has been to expand the sale. Sales tax base into service areas. In the initial point of sales taxes a little bit of history. Sales tax in the 1930's when this was put in when North Carolina accepted sales tax. 70% or more of the GDP The GDP was involved with tangible items, goods, and 30% was serviced. And in North Carolina and in the United States as of today's 21st century economy, it is now 70% of service and 30% of tangible items. Yet our tax system is pretty heavily Weighted on goods. And one, it's not fair if we're trying to attract manufacturing jobs to this state of North Carolina, and more importantly it is better for us to broaden the base. And as we do so, taking in services which we've done in the last couple of times in pieces of legislation, we are actually Broadening the base and lowering the rate of the PIT, which is in tight. Whereas we move away from an income tax based system which is detrimental to economic growth, savings, investments and entrepreneurship, to a consumption based system which allows the taxpayer to have the money and use it as they see fit without government telling them how to spend their money. Spend their money. Now that's the end of the history lesson. What this bill does and I'll applaud staff on helping us get some clarity in sales tax.
We worked on it the last couple of times. I will say that I missed and there is a number of us, missed an important part of defining what a retailer is in North Carolina. And if you read the summary, you'll see exactly what this bill's trying to do. It is trying to one, treat similar transactions the same. The way the language came out in a previous bill and under the current law, we did not define retailer as someone in North Carolina doing business, selling goods and or services period. That's how simple this can be. And once you established that as a retailer then the General Assembly decides what services will be put in To the broaden sales tax base. And hopefully over time, you continue broaden the base, you continue lowering the rate, we'll have achieved our goal. Now, so what this bill does is it defines the fact that a retailer is someone indeed in business in North Carolina selling goods and or services. That helps provide some clarity to the department of revenue and more importantly to a lot of businesses that are struggling as to whether they should or should not be collecting sales tax. And this is an important step forward. My email and my phones have been ringing off the hook in asking for help. That's why this bill is so very important for us to move forward. The second thing it does is it clearly defines what the intent was of the General Assembly in moving forward in broadening of the sales tax base. By defining what the repairs, maintenance and installation is as far as being taxable items. And so under the circumstances, you will see that in your packet, And again I'll applaud the General Assembly staff Mrs Everett and the like for helping provide some clarity. There's a seat that talks about what might be taxable and what might not be as far as capital improvements which are not taxable as far as [UNKNOWN]. What this does is we will turn this over the department of revenue so that they won't be confused as what the intent was of the General Assembly in implementing this system. And this is a good step froward, future general assemblies will may want to expand the sales tax base that's the deception of the body but under the present situation based on repairs maintenance and installation which is exactly what we authorized the last time. This will provide some certainty so that the department of Revenue. And then through them. To the The business owners we will see some clarity as to who should and should not be taxing. The other part is because of the confusion this bill would also allows a grace period to build business that maybe confused. So we extended and I'm gonna let Mr. Avert talk in more detail. But we extended it beyond what was the original match deadline I believe until December of 16 so that businesses will not be punished and the department of Revenue is authorized not to charge penalties and other negative fees and the like. This is trying to protect business that not for reason that they dint just not collect taxes but because of the confusion we owe it to them to make sure this is done. Now the important of this is treating similar transactions the same. Now give me an example of these. I go to Ross to buy carpet for my home. I'm gonna change my carpet or hard wood floor or whatever. I go to Ross I pay sales tax already on the carpet and now they are going to install my carpet and they have sales tax. the service of installation. Now that is part of our expansion which we did last year. That's fine. Now, all of a sudden, senator Clark goes to Louis and he buys carpet, and he goes to Mike, the carpet installer who under the old definition, now the definition that we have is not considered a retailer but yet he will install the carpet and doesn't charge sales tax. And the real dilemma is you cannot have two businesses providing the same service and being treated differently. And that's the whole cracks of this bill in simple If we don't take action on this after I hope that the revenue laws would come out as a uniform body which and just for your knowledge some members here revenue law generally takes up these tough bills
like market base sourcing like this. Where they have a complicated bill. Spent four meetings discussing these issues and hopefully come out with a recommendation as to the best way the General Assembly can move forward. We've not been as successful in the recent past as we were previously. But hopefully that can be done in the future. But before you is a General Assembly now. We have this sales tax Clarification, and Mrs Chairman, I would like Mrs Everett to add to my comments if she may and then we'll open up the questions. And this is strictly discussions today we're not taking a vote on this but it is an important issue for every member to understand why It is important, and the other reason is, so your phones and emails wont ring off the hook, okay. >> Thank you Senator Russo/g . At this time I'm gonna let Sandy Everett take over for any explanations that she needs to make and we've got other staff around that can do the same. Thank you. >> Thank you Mr Mr Chairman. Just to start with the big picture and reiterate a little bit of what the Senator Russo/g said. Last session the General Assembly repealed the Sales tax exemption for installation charges and it expanded the base to include repair maintenance and installation services. Then what the legislation also did was Would say that for purposes of this, a person who only provides repair maintenance and installation services is not considered a retailer under sales tax all and therefore won't have to charge and collect the tax and also there are real property contractor. We will also say that if you're a retail contractor, so you are someone such as There's a retailer sometimes and a real property contractor others if the majority of your income comes when that retail activity, then you have to be a retailer and collect and remit the tax. What this bill does is to remove that distinction. By removing that distinction, that now brings people who only provided services into the mix of people who are retailers and have to collect the tax as well as real property contractors. The bill also last session expanded the definition of a service contract to include a service contract on personal property even if it's attached a real property. But for repair service it only included tangible personal property, so once again, you might have a repair of a piece of real property such as an [UNKNOWN] system being treated differently depending upon whether or not that work was performed under a service contract or just as a repair. |So what this bill does is to say that the repair, maintenance and installation of all property real and personal will be subjected to the sales tax unless it s excluded. So with the big picture in mind \i will walk you through the bill quickly to show you how it works. The first section of the bill, section Section 1, A, B and B are the grace period provisions that senator Richard mentioned. The first one, subsection A line 7 through 11 is what basically, for lack of a better word, provides a safe harbor to anybody whose been in this business from March 1st until the end of this year December 31st And it basically says they will not be liable for any under collection of tax. No reason to even assist in the tax. Under current law, if someone is assessed to a tax, and it is collectible, its gone through all of the hearings and the tax is an owed tax, the secretary of Revenue has the ability to waive the penalties if necessary, and they can also in some instances compromise the actual tax liabilities. And what this section does, is to give one more reason that the secretary can compromise that liability and that is if the tax is Is a tax that was on the repair and maintenance and installation services. It only does it for six years which is your general audit period. It covers one cycle, which gives time for people to become educated about this and if someone unknowingly did not collect the right amount of tax, and they are assessed to tax and it goes through the process and the tax is Owed, this would give some safety to that. Sub section C is something that you may have already heard about, it's with real property contractors who may have under collected on the use tax, over collected on sales tax. As a general rule, if that is the occurrence and it is a related event, they can offset your used tax liability within the sales tax that you collected, that was not allowed for real property contractors so this remove that distinction, goes back to the current law allows that offset a liability and makes that provision retroactive to January 1,
2015. And I'll also quickly say in section nine, of the bill on the very last page, there is a provision, directing the department of revenue to issue written guidance on the implementation of the sales quench exchanges in this bill within 120 days of it's enactment. And the purpose of that, is once again, is just to give more clarity, to let the department know what its priority should be. The priority should be getting out any written written notice to tax payers. Now beginning in section two of the bill we have defined house cleaning and janitorial service as the interior cleaning of the building. The reason that's defined is because it's gonna be an exemption from the maintenance of real property. But you'll notice in that That definition of house cleaning and genetorial services. It does not include a service that cleans or waxes floors, cleans carpets washes windows unless the services are provided as part of an interior cleaning service package because the thought is that if you are waxing Floors, that is part of maintaining those floors. If you are cleaning carpets that is part of maintenance. So those types of cleaning services will be subject to tax. The term landscaping services has been defined and that is because landscaping will be exempted from this tax. However as you will see the definition of Landscaping just includes the living things, it would not include what you may think of a hard scape. So to the extent someone builds a walkway or repairs a walkway in your yard, that would be a taxable event, but as far as maintaining your lawn, planning your lawn, planting trees, mowing your grass Those are exempt services. Also, you will see that there is a motor vehicle contract, service contract. In the legislation last year, there was an exemption for motor vehicles for our service contract on our motor vehicle, but that begins a confusion as to what is a service contract on a motor vehicle, does it have to be the whole motor vehicle or can it just be the transmission? So this was clarified that it can be a contract on the motor vehicle itself or any component part of it. And as you recall from last session, a service contract on a motor vehicle is exempt from the sales tax on service contract because all the repairs maintenance of those cars even those performed under a service contract will be taxable. The definition of real property is defined mainly so that it would be given that manufactured homes and module homes are considered real property. You will note that there is a defined term of real property contract and the key to this definition is that contract is with respect to a capital improvement and that we'll get into a little bit later. The next key part of the bill is on the beginning on line 47, and that is the definition of repair, maintenance and installation services. The word real property has been included on line 49 so that that distinction between the service contract under repair, they are now treated the same. You will also see on the beginning of line page 3 that it clarifies that it does include cleaning, washing or polishing carpets when we were looking at the definition of the current law one of the words is to restore property to its proper working order. As the department began implementing it it became clear that often times part of restoring an item is cleaning it, that of course as you probably know then once you begin to clean property that brought in car washes. And as you know then we had that distinction that if all you provided was a service, you're not subject to the tax but if you provide any other retail you are and that once again began the situation where some car washes were subject to tax and others are not. What this clearly says is that all the washing and cleaning of tangible personal property such as a car will be subject to tax and it doesn't matter if it is coin operated or not. You also see beginning on line 18 that we've added a few things to the definition for clarity these were part of what was in the written documentation that came to the department in guidance to tax payers, the modification changing or altering of property also to remove or pump waste from tangible personal property not real property but from tangible personal property will be considered part of maintaining that. To inspect or monitor property and also pest control for a building. Beginning on lines 24 you will see we have stricken through the definition of retail trade And again at the bottom of page three on NB. We've stricken through the language that was the language that curved out certain people such as real property contractors and people who only provided RMS services.
And if you look on page four beginning on line six. What this clearly says is that anyone who's providing a service that is taxable under this article is a retailer, and is responsible for collecting and remitting the tax. Beginning on line 30 with the definition of service contract we've added some words mostly just to make sure that the repair and maintenance of property and service contract of that same property are treated the same. We've also clarified in here that a service contract and a pool maintenance contract is subject to tax. As you recall in the bill from session if the item is exempt from sales tax then the repair and maintenance of that item is exempt from tax. Tax. Well water that is piped through the main line is exempt from tax. You do not pay sales tax on the water you draw from your forces whiles pools receive water through that line. So the argument became that if am maintaining the water in a pool, because the water is exempt from tax, that pool maintenance contract is exempt from tax. And the sponsors of the bill wanted it cleared that pool maintenance contracts would be subject to tax. The ending on section four just provides for bundle transactions because now you have services that are bundled and it just provides what will happen if you have a transaction that includes some taxable services and some non-taxable services how that will be taxed. But the key part of the bill begins on page five beginning on line 49 with the word capital improvement. With the decision that all People who provide these services are subject to tax. That broadens your base. This seeks to restrict that base a little bit and here's how it does it. First, it excludes capital improvements from the definition of repair, maintenance and installation services. For the most part, a capital improvement improvement is new construction. There is a test in there that is used by other states whose basis is broad as this where capital improvement has certain factors you consider such as the customization of the product or how it's installed, or whether it adds value to your property. So on the chart that you have that gives some examples of things that have typically been considered a capital improvement. Also on page six beginning on line four at least seven things that are deemed to be, these are examples o capital improvements, site preparations, excavation activities, that' always gonna be considered a capital improvement and as such not subject to tax. Removal of items from real property such as debris, construction material, asbestos, pumping out your septic tank, any removal of items from real property will be considered a capital improvement and will be excluded for tax. Typically the performance of work that requires a permit under the building code, the instillation of equipment or fixtures that are attached to real property and that are depreciated for income tax purposes under the code. This will be especially important for your commercial businesses where they have large pieces of equipment that they permanently affix to their property and depreciate them those will be considered capital improvements and the installation of that property would not be subject to tax. The repair and maintenance of it would be. Also the installation of roads, parking lots and sidewalks, those are typically things either owned by the state or counties or commercial endeavors those would not be taxed and as landscaping services The key difference between this bill as originally introduced and the PCS that you have today begins on line 19 and that is, this bill will limit the exclusions from the base more narrowly than the original bill Often times, cabinets, countertops, floorings, floor coverings such as vinyl and linoleum, the installation of appliances, these are often considered a capital improvement but the intent of the sponsors would be that the installation of those types of items outside of new construction should be taxable events. This provides that regardless of what test you use to determine if something is a capital improvement if you are installing one of these four items and it's not a new construction, those are considered installation of tangible personal property and that's a taxable event. The the next thing is on page seven under the definition of service contract outlines 11 through 13. This once again is just paralleling the changes to repairs and maintenance but the next important section is section seven.
These are the exemptions from sales tax. So beginning on line 41 these are the things that are covered under repair, maintenance and installation services but that are specifically being exempted. If there's a fee or a charge for an inspection that is required by law such as your motor vehicle inspection fee note that will be exempt from the sales tax base. Services performed by a related member that would be excluded from the sales tax base. Because a related member is someone that, if I'm the person receiving the service and a related member is providing that service I would owe more than 50% of that related member more analogous to an an employee providing the service. Beginning on page 8 the first few lines on that page where services performed to resolve an issue that was part of a capital improvement. If they are performed within six months of the completion of the project or within six months of the new structure being occupied often times in the home building industry or any completion of a Of a new construction.There's the punch list items and they're maybe some repairs and maintenance that you have to pay for that were required to be fixed. And this would just say that, that would still be considered part of that capital improvement not part of the sales tax base. Just like your insulation of roads,and parking lots and side walks is excluded from the base so would any repair and maintenance services be exempted. The removal of waste from real property would be exempt even if it's not performed under a contract. It would still be exempt. Home inspections, once again house cleaning and janitorial services, landscaping services and And also towing services. Right now if a towing services used to take a car that needs to be repaired to the person who's gonna repair it that is considered part of the course necessary to complete that repair and that towing charge would be part of the sales tax base. This is just specifically exempting towing services from the sales tax base. Mr. Chairman I will, the effective date will be for January 01,2017 except otherwise provided. I will be happy to help answer any questions. >> Thank you Sandy for that in depth analysis. Senator Rochelle. >> If I may just add a couple of points Cindy did an excellent job in trying to provide some simplicity and clarity to a complicated issue. What we had a very complicated and unfair tax system that we've been trying to clean up both fair and simple and under the premises That we wanted to make sure that every tax payer is treated the same.No one has a special karma because they have the political juice to make things happen.That people loose confidence in the system. There are some comments that were made in last year about the fact that they didn't want too. Our intent was repairs, maintenance and installation, we set it out clearly, and this what this bill does but they said they didn't want to make new tax payers. Ladies and gentlemen if you've ever been in business in North Carolina or anywhere, the day you open business you're a tax payer for the state of North Carolina and the Federal government. You're already putting out federal taxes, you're paying employees you're playing [UNKNOWN] withholding and the likes. So it's kind of a red herring for people to say they didn't wanna make new taxpayers. The day you're in business you're a tax collector. And that's just the reality of it. And the last point I wanna make is this, part of fair and simple. You cannot have a fair Simple tax system and sales tax running the base. If you just doing it to blue collar, at some point and in the very new future you need white collar jobs also, that means attorneys, physicians, dentists, veterinarians and the like. And any system that doesn't include that is not fair, it's not encompassing enough to treat every tax payer the same, this general assembly needs to, if you by into this concept you need to make sure that that is done. >> Thank you Senator Rochelle, saw Senator Hise hand and then I saw Senator Ford and if there are others we'll take them. Senator Hise. >> Thank you Mr. Chairman. Two questions are kinda getting on this concept of cleaning services and that's kinda coming in. For example I have someone who has rental properties and they hire independent contractors to come in and clean those in between turnovers for For rental they are still open/g to contractors. Are they now going to be collecting sales tax for that service as well? >> No, to me from what you described, that would be cleaning the entire home, the interior cleaning of that home and that would be considered house cleaning or janitorial services and would not
be subject to tax. >> Follow up then. But if it is partial if they're bringing them in and just to clean the floors this week then it is taxable? >> Yes. >> Senator Rucho. >> It would be like if I went and brought in Stanley Steamer to clean the rug at my house. Okay, now if I have maid or some kind of normal everyday house cleaning then that wouldn't be. [CROSSTALK]. >> And that is just what I'm trying to dwell on. That what normal everyday housekeeping or if you have an in home aid in your house that also does housekeeping and those kind of things You don't have to parade that or anything else for those services. >> Yes that is just correct. >> Good question. We heist that one over a bit ourselves. Senator Ford and Senator Mckissick. >> Thank you Mr.Chairman. A couple of quick questions. One this is for staff having to deal with the section one B subsection 7 . The bill makes reference to good faith effort. Can you define that. >> [SOUND] No sir we don't have a defined definition of good faith effort. But if the person can show that they did not realize they were responsible for collecting that tax and am sure the department that term is used often when the secretary has leeway. The secretary can wave penalties for good faith effort. The department has tests for that and they can perhaps answer more. >> And Senator Rucho might shed some light here.>> I'll give you the English version of it. No business Should be put out of business in North Carolina over an issue of sales tax like these because of the confusion that we brought forward. That is an example and the secretary will fully understand that's the kinda of activity general assembly never intended to do. >> Thank you for that clarification Senator Rucho Mr Chairman, I believe that this is an opportunity for us to put some definitions around good faith effort as it relates to making sure that everyone is on the same page and not leaving it up to an individuals interpretation from one secretary to the next. >> I understand your question. I think DOR is going to define this for you and for me and everybody else, however, that could be done could added to the bill. It could be very tricky to. I would let the DOR settle that one if it were me. But I understand where you're coming from. >> Yeah I was just for consistency purposes and making sure that everybody is clear and that the language that is transparent as it relates to what good faith effort looks like. The second quick question has to do with, it was brought to my attention form a community college in my area pertaining to work done for janitorial services that is a service contract, then that contract is taxable. Cindy >> Senator I will look at that. The intent of the bill is to treat a service contract the same way that the repair, maintenance and installation would be treated. So I will look art it and if it is treated differently for that purpose we will make sure that we get that clarified in the bill. >> Quick follow up. >> Follow up >> I would appreciate that because right now the community college has bill of about half a million dollars as relates to DOR's interpretation of that janitorial service contract. And I imagine if my community college is experiencing that then everybody else us too. >> Point taken. Senator Mckissick I believe that you were next and then Senator Daniel. Senator McKissick. >> Sure, a couple of questions. I notice that we are now going to be charging self serve car washes this additional tax. And it would seem to me for a self service car wash where you go there and put in two dollars and three dollars worth of quarters, you're basically providing the service Yourself. The only thing you're getting is the water that there would be a justification for excluding the self service car washes from this tax. I mean can somebody help me with that in terms of why we are now covering the self service car washes because I A number of Emails from self service car washes providers who seem to be deeply concerned about it and I can understand why. >> I understand your point there Senator >> Comment after Sandy please. >> Sandy. >> As I understood, the intent of the chairs is that all car washes should be treated Is the same regardless of how the person receives the service. Whether it's through paying extra at the pump and riding through the one at Sheikh's or going to Autobell or however. And there is precedence for taxing coin operated industries so that just because it's Coin operated would not be a hindrance to having
the tax imposed on it. >> I'd like to comment. >> Senator Rucho. >> Thank you, Senator McKissick, in treating every business the same if you're having your car washed at one of the automated ones that sales tax, if you are having it done by a machine which in essence you're renting that machine from XYZ car wash. You have to treat them all the same and so in essence then the sales tax would be included in trying to keep consistent with providing a service, and or a rental of that facility during that period of time. follow up Mr Chair. >> Follow up. >> I would hope that we would rethink perhaps the [UNKNOWN] dealing with the self service car washes. I think that there's a potential justification or an exclusion there but there are two other matters I also wanted to ask about. And that was, it looks as if the there's a complete reconditioning of kitchen cabinets excluded but if you go in there and replace the door or repair your cabinets you pay tax on it. And I don't know how you can accomplish a reconditioning without going in there and repairing and replacing the doors. So it would appear to be inconsistency in terms of treatment. And the last one- >> Wait. Let's pause on that one right there. This is an issue that, I know Cindy and we're all familiar with. >> And Senator McKissick you have a very good eye. I do believe that one should not be included under capital improvement. A complete reconditioning of the kitchen cabinet It should not have been included under capital improvement, it should have been included under repair, maintenance and installation. >> Thank you, if we could get that revised as we move forward. The only other thing which appeared to have some inconsistency was in the treatment of ducts. If you build or repair a duct it's excluding if it is It's a permanent dock be it if it's a floating dock um I can understand in terms of initial installation there might be a difference or but between floating docks either and in terms of repair and installation is taxable on all occasions. So I mean I was just curious about what appears to be a Inconsistency of treatment. >> Senator Rucho you wanted to- >> Senator Mikulski um people have spent hours doing this, we appreciate your feedback but this is a perfect example of a complicated tax system that ya'll never tried to fix because now we know why it's complicated in this site but But this is an effort and your input is appreciated tremendously because there are a lot of parts to this, and so what we try to do is make sure that we encompass them with a consistent stroke. And then refine accordingly but this is a complicated issue and we could spend, and we've got two hours, we could spend questions on every single aspect in life on it. >> I believe the follow up here, Sandy don't you have a followup on that? >> Yes sir. Thank you Mr. chairman. The list that we've gotten here is just we've learned from other states what some of the items are, and I know this may sound like splitting hairs but a permanent dock is one that is attached to the real property and thus becomes real property. A floating dock is tangible personal property, it never loses it's character as tangible personal property and that is the reason they would be treated differently. Under the thought of whether it becomes real property or not I realize that's a Same distinction but that is a distinction that has been made. >> One last followup. >> Yeah I understand and I would just give some thought to like there are a few other things here I can get with senator Rucho later and we can go through a few. But I mean I appreciate you bringing it forward but, I think we need clarity, I think we need to eliminate the ambiguity. So I appreciate the effort that's going into this, I guess you can see a few instances where there appear to be inconsistent treatments of things that are quite similar in character and nature. >> Senator Mckissick wants to clear up a our clarification bill. >> That's noble of you but I believe I heard Senator Daniel next and then Senator Van Duyn. >> Mr. chairman I'll just affirm my question and I'll talk to [UNKNOWN] after the meeting. >> All right, Senator Van Duyn. >> Just so I can make sure I understand so a complete remodel of the kitchen or a bath is no longer considered a capital improvement. [BLANK_AUDIO] For the most answer that question is yes because we specifically said the installation of cabinets, flooring and appliances which are three key ingredients of the kitchen model would not be considered a capital improvement if they are in an existing structure. May I respond to that?
>> Yes, Senator Rucho. >> Your question is well appreciated. We've wrestled with this thing here but it's a decision like a new house before you and I buy it, that is on sales tax free as based on what current law says. But in addition whereas if I wanna go ahead and put a new flooring downstairs in my room or family room or something, that's a decision you make on an existing structure and that's how we try to separate it. >> Follow up? >> Follow up. >> But typically when you're talking about complete kitchen and bath remodels. Frequently people do that to improve the saleability of the house. That feels like a capital improvement to me. >> When you pay for it, you will feel it again. Good point. Senator Raven. >> I certainly appreciate what you said on that but I'll also say this that if it's a true capital improvement, I would expect something to be reflected in the city or county ad valorem taxes and those probably do not. However it does make it more sell-able, and so down the road you will be reaping some benefit if you are indeed doing if for sale, and probably when the cops/g are done, then the next go round of taxing the value of that property would go up. Go up. >> Senator Meredith I believe you were next. >> Thank you Mr. Chairman. Thank you senator Richard for all your work in this bill I appreciate it. Cindy I did have one specific question, it was during your bill summary you had mentioned that if retaining laws or hard structure are used for sidewalks or that they would not be a taxable event. I now in landscaping you stated earlier, that hardscaping was considered taxed. So I'm a little confused, sometimes DOT requires retaining walls and hardscaping to put in asphalt and sidewalks, would that be taxable? >> The initial installation of those would be considered a capital improvement. It would not be taxable. The repair and maintenance of them would more than likely be taxable. >> Follow up. >> Follow up. Just so I'm clear, in the earlier statement for landscaping, all plant material Was exempt, but hardscaping would be a taxable event, retaining walls, sidewalks that type of stuff. Correct? >> I differentiated it with the landscaping and hardscaping, I just learned throughout this process that there are two types of landscaping, and so we want to be clear that the maintenance of a lawn would clearly be exempt. Now the installation of the hardscape, as an initial installation, would be considered a capital improvement, and as such is excluded. But the repair and maintenance of it would be subject to tax. It's not part of the landscaping exemption. >> Thank you Mr. Chairman. Thank you [INAUDIBLE]. >> I have Senator Curtis and then the Senator Carnal Ribbon. Senator Curtis. >> If the owner of a rental property has an employee who does maintenance, goes to Laws/g and buys a carpet and installs it, paid part of his normal duties Working by the hour, would that be taxable? >> No that is his employee, he would not pay sales tax on the labor to that employee. >> Senator Cole Reagan. >> Yes thank you. This is a little bit different than the other questions or the other inputs one might make. It seems to me that one of the problems we consistently have is messaging and a lot of these things, so that folks who are gonna get all this get kind of confused when it finally comes out. We talked for a while in other venues about having a business development website. It didn't go very far but it's still a great idea and if it included something like this as one of the pages, one of the parts in there maybe this is an opening to go ahead and say part of this bill should say, I would guess my concept would be that commerce would do an overview of here's what the website is and DOR would input the tax implications, but at least we could start getting ahead of the power curve on this stuff. >> Senator Rochelle- >> a good point. Part of the overall plan was to have a business registration.
North Carolina we don't really know how many corporations there are, how many LLCs, SCorps and the like which this is the information that could help Dr. Bodman give us better numbers on it. The other advantage and Senator Rabon just Just made the point was, at some point one of the currents of business registration is if you register your business, you would be exempt from any type of service tax to your business and sales tax to services. The underlying point behind it is he was trying to get at the underground economy Because there is a lot of business transacted today, some folks say 10, 20% of your GDP, whatever it be it's not fair for the ones that are paying and following the rules. And so at some point if this is introduced and Senator Ribbon, Senator Curtis were taking the In the point on that, that would be a good system to entertain, because if it is there is a carrot to those businesses they would not be included in the service part on their business. >> Senator Hassell I believe you were next. >> Thank you Mr. Chair I'm sorry I'm late coming to this rodeo, actually I think I have three questions. Is their a fiscal note a fixed to this, I don't see it in the package I'm just curious. >> I think Mr. Boardman is got one coming out. >> secondly how many other states make this distinction. Between capital and the repair and maintenance and tax these particular matters if we know. >> Sandy try that one. >> There are a handful of states who's sales tax base includes the repair and maintenance of real property and the installation of tangible personal property into real Property and those states that we have looked at and there's at least 4 or 5 tend to differentiate between capital improvement and repair, maintenance and installation. A similar list of what you see before you, in fact many of these um, the detail of this list comes from the experience of those Other states. >> To follow up maybe Denise could add something here. Denise Canada, fiscal research. Responding to the question about whether there is a fiscal memo to accompany the PCS. Since the item is not for vote today but only discussion Then that you do not have a fiscal memo in your package but we are prepared to speak generally about the revenue impact of the bill. >> If you want that senator Arsenal they could give you a general idea, ballpark figures. Let's do that. >> Sure. >> And if we can get some itemization of the other states that do this kind of thing If there are any in the immediate area or does the question of the tax and the service as opposed to capital. >> If he just wants a list of other states we can provide that. >> We will get you that. >> Mr. Chairman may I ask that along with what senator Hodgson asked for is that there be a list of other states that show like North Carolina presently attached I think 33 or 35 services, taxes 86 services and so in reality that may prove as a reason why Texas has got a zero income tax and ours just continues to go down. So those are the things you need to look at if you wanna really understand the picture senator Hodgson Let's continue with Denise giving us some general figures on the fiscal impact. >> [INAUDIBLE] So to put the numbers in context, when the sale tax on these services was adopted in last year's budget our cost estimate was somewhere around 160 million dollars for a full year. In comparison we think that the impact of the PCS would be to generate an additional $140, 150 million on services. I can speak to itemization within that if that would be to the interest of the committee. >> Let's see. Senator Hise a follow up. >> If we would simply get that information all together that would be, I think a useful thing. >> At the appropriate time it will come out. >> We'll get that, I believe most of that and a fiscal note when we get it. Senator Rucho. >> And also part of that needs to be broken out as to how much of it comes from the original repairs, maintenance and installation clarification where one business was treated differently than others, so >> And what might be interesting to do is also provide on a separate sheet or a separate column the tax cuts that we have done when we have reduced Reduce the cluster and one way of reducing the personal income tax is because you are collecting taxes on one end but we gotta let people know
that we're cutting them on the other end, so many of these same people are benefiting with their business and with their personal. Anyway, followup senator Harsh. >> And I'll followup my third question which is an Partment/g one but doesn't anything in here deal with our ongoing discount for cigarette tax stamps. >> [LAUGH] I let- >> It's the only one I know of. >> You know the answer to that one, you asked a question and like most of all you do and they know the answer. >> No sir. >> Nalka/g That's a shame. >> At this time, seeing no other members, do we have anyone from the audience that wishes to voice a concern or a question about this bill? This is a far ranging bill [UNKNOWN] members today. >> Members of the senate or house members [INAUDIBLE] >> Excuse me mr. chair Chairman I think they all went to a commerce meeting but if we have members of the house that are here, I believe most of them had to leave before 11 o'clock so seeing none there we will end our discussion of the bill today, it will be voted at a later date, and we And we will have fiscal notes. Thank you very much ladies and gentlemen, this concludes our session.