WRAL Investigates

Lawmakers plan to close sales-tax loophole

Posted July 15, 2009

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— As they struggle with the new state budget and haggle over proposed cuts and tax increases, one subject lawmakers seem to agree on is closing a loophole in the state tax code that Lowe's Cos. uses to avoid collecting sales tax on some goods.

Mooresville-based Lowe's doesn't charge sales tax on items like windows, carpeting, tile, cabinets, counter tops and appliances that store contractors install. Customers pay the tax only when they buy the goods at a Lowe's store for a do-it-yourself project.

Lowe's merchandise State wants money, competitors seek fairness

Lowe's officials maintain they follow 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.

Use taxes likely bring in millions of dollars less to North Carolina's coffers than retail sales taxes would – most contractors get wholesale discounts, so the use doesn't include any retail mark-ups that a do-it-yourselfer’s sales tax would include. Lawmakers said they want to ensure the state gets the taxes owed as they try to erase a projected $4.6 billion deficit.

"It's a loophole that needs to be closed and bring some clarity to it and finality to it, and we fully intend to make sure that the state gets their fair share," said Sen. David Hoyle, D-Gaston.

"The idea is everybody ought to play by the same rules. Make them clear and consistent. We'll let everyone go out and do business and have a fair competitive fight," said Sen. Dan Clodfelter, D-Mecklenburg.

Lowe's competitors, from Home Depot Inc. to local home-improvement stores, charge sales tax on materials regardless of whether their crews install the goods for customers.

Andy Pittman of Jeffreys Appliance Center in Raleigh said Wednesday that he doesn't care that lawmakers are looking only at the added revenue generated by a change in the tax code. He just wants everyone to operate by the same rules.

"We're at a disadvantage of the rate of the sales tax," Pittman said. "If we're going to pay the taxes and that's the way the law is intended, then we want everyone to be on the same playing field we are."

Lowe's officials, who have battled with the state Department of Revenue for several years over the issue, said they believe they are following state law as written and would conform to any changes in the law.

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  • jpquick Jul 16, 2009

    A better way of leveling the playing field in the midst of recession would be to clarify the law to allow Home Depot and other installers to apply use taxes instead of sales taxes to their work.

    Mr. Hoyle's approach will simply put more independent contractors servicing Lowes customers out of business.

  • time4real Jul 16, 2009

    goodie, more tax, please keep taxing me, i'm almost done and will be living in a tent soon! Send me a tax bill for the air I breathe and the ozone killer stench of my stew that is contributing to global warming! I LOVE taxes!

  • keycall Jul 16, 2009

    This so called loophole, actually cost Lowes / lowes had the added expense of setting up commercial accts. - lowes just does not charge the contractor tax - he is not the end user of the product purchased,. ie its a little cheaper for the little guy to do business, the little business guy passes his savings onto the customer - creating a JOB !
    Keep taxing and raising taxes, and the little guy goes out of business - becomes a burden on society and ends up collecting unemployement, medicaid, etc.
    My view is our legislative body is a lot like a babies diaper - leave it on too long and it too becomes full of sh^t ! Some in Legislation know nothing else - and they too are full of sh^t ! We need to change our babies diapers every once in a while, and too our Legislature !
    Just my 2 cents worth - and its tax free ! I used a loophole !

  • ecu_rules Jul 16, 2009

    Its not a loophole. The way it is written electricians, plumbers, abd heating and air guys don't have to charge tax because they paid tax already on it when they bought the materials. As long as Lowes pays themselves I am fine with it. Legislature has a way of messing things up and watch the next plumbing bill will have a 8-12% tax on it.

  • colliedave Jul 16, 2009

    "It's a loophole that needs to be closed and bring some clarity to it and finality to it, and we fully intend to make sure that **the state gets their fair share," ***said Sen. David Hoyle, D-Gaston.

    Typical Democrat (liberal) mentality: it is entitled to the peoples' money!

  • WHEEL Jul 16, 2009

    That bunch of rocket scientists in Raleigh cannot write legislation to achieve what they want. It generally takes two or three attempts to write a simple law. Let's clean house and start over!

  • ThePunisher Jul 16, 2009

    Keep the "loophole" open! Quit taxing every daggum thing!

  • whatusay Jul 15, 2009

    Will our Representatives and Senators pay taxes on their health care benefits? Not in a million years. Government wants private business and citizens to pay taxes, but not them.

  • Fuquayone Jul 15, 2009

    Perfectly spoken 'the_same'. When is the new universal or government healthcare going to match what US senators, reps, etc. already enjoy? And the perks. It is outrageous in many cases.

  • jtPER Jul 15, 2009

    While they're at it, how about the lawmakers end the loopholes and perks they enjoy? Or that the governor enjoys?