General Assembly Passes Tax & Regulatory Reform Bills During Daylong Session

Returning to Raleigh for a brief session last Thursday, the North Carolina General Assembly completed work on two bills that will provide clarity to the state’s tax law and reduce the cost of redevelopment.

Both chambers agreed to a conference report for SB 628 (Various Changes to Revenue Laws). This bill contains numerous provisions sought by our legislative team to simplify and clarify recent changes to sales tax on repair, maintenance, and installation (RMI) services. Perhaps the most significant change increased the “mixed transaction” threshold (which is a project that includes both a capital improvement and one or more RMI services).

Under current law, if the RMI portion of the project is less than 10%, it is exempt from sales tax on labor. This bill increases the percentage to 25% or less of the cost of the entire project. This increase means that most traditional residential remodeling jobs will be exempt from sales tax on labor even if they include significant repair items unrelated to the remodeling. New construction is already exempt from sales tax on labor because, by definition, it is a “capital improvement.”

The bill also includes language sought by the North Carolina Home Builders Association (NCHBA) that alters the calculation of the franchise tax owed. A part of larger business tax changes, this legislation allows taxpayers to reduce tangible property base for franchise tax purposes by the amount of any debt owed on the property. The adjustment was eliminated in the 2015 franchise tax simplification changes. However, the elimination of the debt factor resulted in higher tax bills for some home builders who must pay franchise taxes. This change will be effective for the 2019 tax year.

Senate Bill 628 conference report passed the House 107-0 and the Senate 38-0 and will now be sent to the Governor. NCHBA’s legislative team thanks the chairs of both the House (Rep. Brawley R-Mecklenburg, Rep. Saine R-Lincoln, Rep. Szoka R-Cumberland) and Senate (Sen. Tillman R-Randolph, Sen. Tucker R-Union, Sen. Brock R-Davie) Finance committees for their hard work on this vital issue.

Another bill headed to the Governor, SB 16 (Business & Agency Regulatory Reform of 2017) includes provisions stating that when preexisting development is redeveloped, either in whole or in part, increased stormwater controls shall only be required for the amount of impervious surface being created that exceeds the amount of impervious surface that existed before the redevelopment.

The bill also contains a provision that allows wastewater system construction permits issued from January 1, 2000 to January 1, 2015, which had not been acted on and would have expired, to remain valid until January 1, 2020, without penalty, unless there are changes to the hydraulic flow or wastewater characteristics from the original local health department evaluation. NCHBA worked closely with Senator Tom McInnis (R-Richmond) in an effort to include this important language that will save builders additional costs or previously obtained permits.

The Conference Report cleared the House 79-29 and the Senate 30-10. This bill was the first of several omnibus regulatory reform measures to be sent the Governor. Lawmakers will continue to put the finishing touches and plan to pass those measures in subsequent sessions.

These bills were the last in a series of critical pieces of legislation to pass the General Assembly during the 2017 Session. Other critical industry bills recently signed into law include:

    HB 252 (Building Code Regulatory Reform) HB 436 (Local Government Regulatory Fees)HB 707 (Lien Agent/Notice of Cancellation)SB 131 (Regulatory Reform Act of 2016-2017)

Finally, the Department of Insurance posted the 2012, 2014 and 2015 North Carolina Building Codes online for download that will allow users to print, search, or highlight the code. In 2016, NCHBA sought an appropriation of $425,000 to allow the department to implement this task. This will make the code easily accessible to our members.

Source: North Carolina Home Builders Association

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