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Lawmakers eye sales tax on services

Posted November 6, 2008

— With North Carolina staring at a growing budget deficit, some lawmakers have floated the idea of expanding the state sales tax to include many services that have gone untaxed for years.

A budget analyst for the General Assembly said Thursday the budget deficit could reach $1.6 billion next year, although Gov. Mike Easley's budget director said it more likely would be between $1 billion and $1.2 billion.

Easley ordered some state departments to cut their budgets by 5 percent to prepare for the slowdown in tax revenue, up from the 2 percent cuts he ordered in September.

No sales tax is collected on most labor or services in North Carolina, from auto mechanics to barbers to accountants. A few exceptions to the rule include dry cleaning and cable television installation.

Some lawmakers want to revise the tax code so sales tax can be charged on the excluded services, setting up a fight with business owners and fiscally conservative legislators.

"We do not need, in this economy, to be adding more taxes to hairdressers and other professional services that people buy every day," said Rep. Nelson Dollar, R-Wake.

Tim Schelfe and some of his colleagues already have been through a battle on what North Carolina considers a taxable service.

Schelfe, a past president of the state chapter of the American Society of Interior Designers, said the state Department of Revenue put some of his fellow designers out of business with its interpretation of the tax code.

If designers advise a client how to create a gorgeous living room or hotel lobby, they don't collect sales tax. As soon as they sell a painting, chair or pillow to carry out the plans, the Department of Revenue said the whole package – including the professional advice – is subject to sales tax.

"We thought it was silly. We thought, how could this be happening?" Schelfe said. "We really thought it had to be a mistake. Why would they be doing this, or how could they be doing this?"

State officials determined that one design firm owed almost $200,000 in back taxes, he said.

The designers banded together and battled for two years before state lawmakers agreed to change the tax code last summer and exempt the service from sales tax, even when it accompanies the sale of furnishings.


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  • james27613 Nov 7, 2008

    Just like that small woman owned bakery in Cary,
    DOR wanted her to pay up big time plus penalties on
    baked breads. Problem is, you go to HT, Lowes or Food Lion and
    you don't pay sales tax on bread ! But you go to the Cary Bakery and you gotta pay tax DOR says.

    Bakery took it to court and after long battle (and lawyer bills)
    got it fixed.

  • OhBella Nov 7, 2008

    This has nothing to do with party affiliation. They did this same thing about 4? years ago in Ohio under a majority republican. They taxed tanning, salon services and the like. "They" said it was temporary but guess what...it never is! In terms of N.C., I blame all political parties but I'm not in their shoes so I am not sure what other options they have.

  • nashvegas Nov 7, 2008

    Bartmansan writes: "The Democrats haven't even gotten into office yet & their already talking about raising taxes."

    You are absolutely correct, the newly electected Dems are NOT in power yet... So that means these taxes are being proposed by the CURRENT legislators!!!

  • teacher-mom Nov 7, 2008

    I have advocated the taxation of tanning booths, nail salons, beauty salons, and other things that are not necessary.

  • paythepiper Nov 7, 2008

    Here we go!!!!

    NC isthe 3rd or 4th highest taxing state in the nation, and what do the citizens do? They put the very people responsible for it right back into office and send two of the biggest culprits to the Gov. office and the US Senate. This is no surprise, and for all of those that voted these folks into office, be quiet and get out your pocketbook, this is just the start.

  • nufsaid Nov 7, 2008

    This doesn't have anything to do with democrats. try reading the tax laws and going thru the process of creating them. then comment.

    This has everything to do with dems. Instead of doing something about corruption and wasteful spending just keep raising taxes and fees. Not to say that there are not some corrupt republicans.

  • SS67 Nov 7, 2008

    This doesn't have anything to do with democrats. try reading the tax laws and going thru the process of creating them. then comment.

  • ifcdirector Nov 7, 2008

    That should read "Democrat Lawmakers Eye Tax On Services". Enjoy the fruits of the election comrades.

  • willis2 Nov 7, 2008

    The elections are over - now let the taxes begin!

  • GWALLY Nov 7, 2008

    tax baby tax....spend baby spend.....!!! You go Democrats...THEY wanted you THEY got you!!!!!