WRAL Investigates

State law interpretation lets Lowe's give shoppers tax break

Posted February 12, 2009

— Foggy state tax laws have created a dispute among home improvement stores and could be costing North Carolina millions of dollars in revenue.

Mooresville-based Lowe's Cos. doesn't charge sales tax on items like windows, carpeting, tile, cabinets, counter tops and appliances that store contractors install in customers' homes. When customers buy the goods at Lowe's for a do-it-yourself project, they have to pay the 6.75 percent state sales tax.

Lowe's apparently stands alone in giving customers the tax break. The company's main competitor, Home Depot Inc., and other home improvement stores charge sales tax on materials regardless of whether their crews install the goods for customers.

"We've had a few customers in years past that said, 'Why are you charging tax? Lowe's doesn't charge tax.' We say, 'Because we have to,'" said John Raper, owner of Floors To Go By John Raper.

Lowe's officials referred WRAL News to the state law on contractor performance agreements.

The law states that contractors like plumbers and furnace repairmen pay what's commonly called a "use tax" for products used in repair projects and then roll that cost into the final bill, which doesn't include an itemized sales tax charge. Because most contractors get wholesale discounts, the use tax they pay wouldn't reflect any retail mark-ups that would be included if a customer were to pay sales tax on the materials.

"If a transaction is exempt from sales tax but subject to use tax, use tax is paid by Lowe's directly to the state and would not be reflected on a cash register receipt," Lowe's spokeswoman Karen Cobb said in a statement.

Lowe's officials declined to discuss the issue further, but competitors maintain the company is misinterpreting the state tax laws to its advantage.

"We just want a level playing field," said Andy Pittman, owner of Jeffrey's Appliance Center in Raleigh.

Pittman said his accountants advise him to collect sales tax on everything he sells, whether his employees install an appliance at a customer's home or not. That stance recently cost him a dishwasher sale, he said.

"The customer didn't buy from us because they were told there was no sales tax (at Lowe's). We had sales tax, and so they shopped there because it was about a $40 difference," he said.

Home Depot declined to discuss the issue.

Shopper April Pyatt said that avoiding state sales tax would make a difference in where she bought appliances or other big-ticket home improvement items.

"In this economy that we're living in, it would make a difference if there were no sales taxes associated with that. That's very important right now," said Pyatt, who was shopping at a Lowe's in Cary.

State tax collectors also notice a difference because use taxes likely bring in millions of dollars less to North Carolina's coffers than retail sales taxes would – revenue that is sorely needed as the state faces a $2 billion budget deficit.

A state Department of Revenue official said she couldn't comment on the issue, however, citing taxpayer confidentiality.

"The department is committed to ensuring that all businesses in North Carolina comply with the tax laws so that everyone operates on an even playing field," Linda Struyk Millsaps, chief operating officer for the Department of Revenue, said in a statement. "The department will continue to do everything within its power to make sure all North Carolina businesses meet their tax responsibilities and pay their fair share."

Sources told WRAL News the department has been in a long-running dispute with Lowe's over the company's reading of the law. The disagreement could lead to litigation and might require lawmakers to clarify state statutes.

Counties that charge a local sales tax also could be losing revenue under the Lowe's interpretation.

Some tax professionals said they see how Lowe's could conceivably fall under the contractor performance agreement section of the law, but they said North Carolina's tax code is awfully murky.

Lowe's competitors said they just want the law to be enforced fairly.

"If we're not required to collect sales tax, (then) obviously we don't want to. If sales tax is required on this type of installation, then we want everybody to be accountable to the same things we're having to be held to," Pittman said.


This story is closed for comments.

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  • nobama Feb 13, 2009

    "Lowe's doesn't charge sales tax on items like windows, carpeting, tile, cabinets, counter tops and appliances that store contractors install in customers' homes."

    Thanks for the money saving tip!!! I'm going to Lowe's.

  • jse830fcnawa030klgmvnnaw+ Feb 13, 2009

    Sales tax is a sales tax, and it should be applied to all brick-and-mortar stores in the state. The foggy interpretation of it should not be used a competitive advantage. Customer service, product line, and positive followups are what a company should focus to serve their local customers properly.

  • Dolphan Feb 13, 2009

    I shouldn't have to pay a sales tax>.< But that argument usually goes no where.

  • discowhale Feb 13, 2009

    I think Lowe's has it right.

    They've found a gray area in the tax code that benefits their customers. If this was as cut and dry as some of you think, the tax people from the state would be there, with a bag, held WAY open, to collect the taxes. But they're not!!

    I like Lowe's better anyway, less cluttered, cleaner, more helpful employees. In the Triangle anyway. Over in the Triad, it's just the opposite, go figure.

  • RU Kiddin me Feb 13, 2009

    Before you buy from a chain- shop your locally owned stores- You'll be surprised to find you can get as good a deal on price and better service

  • ncguy Feb 13, 2009

    Another reason why the Mom and Pop hardware stores can't compete.

  • wolfpacker93 Feb 13, 2009

    "I'm all for it. If Lowes can beat the system, let them. That means lower costs for me." And people wonder why all the illegals come here. People hire them so save a buck even if it's illegal AND hurts us all in the long run. Just because you can "beat" the system, doesn't make it right. I will shop at Home Depot, not Lowes."

    Illegals come here because Lowe's doesn't charge sales tax on contractor install jobs. You're a genius Gump... And it's not "beating" the system. You'd better believe if Lowe's was doing something illegal the liberal money-grubbers in state govt. would have been up their rear-end with a microscope a long time ago. If you care so much about the state taking in max revenue, you should support the company that pays NC CORPORATE TAXES. And that is not Home Depot my friend...

  • todmax Feb 13, 2009

    I remember my grandad talked about his father driving all the way from Morganton over to Wilkesboro for appliance purchases from Mr. Lowe's store because the deals were that much better. Sounds like old Mr. Lowe had a good business model then, and his company is carrying on that legacy. Seems appropriate that a store that has been heavily involved in racing sponsorship and which was established in the shadow of the old Wilkesboro Speedway would have folks who know how to probe every corner of what the 'rules' will allow. You cna bet that Lowe's always gets my business over the other big box building product stores!

  • ezLikeSundayMorning Feb 13, 2009

    I agree with James27613, Lowes has it wrong. But I don't think they are evil for doing it. They read the law and acted accordingly. They're just trying to have a level playing field with contractors.

    If I buy a dishwasher and pay them to install it, I think I should be charged sales tax. If I call and ask for a quote on a new heat pump installed, I should not pay sales tax. Then there is grey area in between. If I'm in the store and buy a water heater and then pay to have it installed for example.

  • RDUTEC Feb 13, 2009

    I don't shop at Lowes because of tax breaks, I shop there because they keep their word and schedules. Home Depot was supposed to put in a garage door for me. Twice I took vacation from work to meet them at my home. Twice they didn't show. When I tried to call, I was put on hold and no one picked up. Same thing happened when my wife bought a new floor for the kitchen. Both times I finally went back and ask for my money back. The manager didn't seem to care if he had to refund my money or not. Never did he give me a reason for them not showing, or an appology. Went to Lowes and paid a little more, but they showed on time and did a good job on the install. Just what happened to me. Maybe others have different experiences.