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August 2 Jones Street Update

Governor Signs Multiple Bills

With another week of limited activity at the General Assembly in the rearview, we turn our focus to bills which have been signed by Governor Cooper. As of this week, the count of NC REALTORS® Legislative Priorities or NC REALTORS®-supported bills stands at 6.

Senate Bill 523

The first bill we are going to highlight is Senate Bill 523 “Revenue Laws Clarifying & Administrative Changes.” This bill is the result of a significant amount of work by stakeholders including NC REALTORS®, REBIC, NAIOP, CCIM, BOMA, and many others to provide needed clarification to the laws regarding the Repair, Maintenance, and Installation (RMI) sales tax. As you may remember from previous discussions, when the law was originally passed a few years ago, it did not appropriately consider the different situations facing residential and commercial property managers and the agreements they have with their clients.

Special thanks to the team at REBIC for their analysis and description of this bill.

Under Senate Bill 523, property management companies are required to charge and remit RMI sales tax only in the following circumstances:

1.    They provide repair, maintenance, installation services for an additional charge above what is stated in the management contract;

2.    They arrange for a third party to provide the repair, maintenance, and installation services and impose an additional charge for arranging these services; and/or

3.    More than twenty-five percent (25%) of the time spent managing an individual real property during a billing or invoice period is attributable to taxable repair, maintenance, and installation services. The property manager can voluntarily provide a written affidavit to attest that no more than 25% of their services on a given property constitute taxable RMI services, which would clear them of liability for taxation on any portion of the contract amount.

The legislation also provides specific exclusions to RMI services, which help ensure much of the work done by property management companies is not subject to taxation. They are:

1.    To troubleshoot, identify, or attempt to identify the source of a problem for the purpose of determining what is needed to restore the real property to working order or good condition; and

2.    To inspect or monitor the real property, including the normal operation of all systems that are part of the real property.

For property managers across North Carolina, the new law provides much-needed clarity on when to assess and remit sales tax on repair, maintenance and installation services that are provided as part of a comprehensive property management agreement. State law has always excluded Property Management agreements from the retail sales tax, but the language in this amendment offers guidance how incidental RMI, or ‘handyman’ services, are treated when provided as part of the agreement.

The 25% threshold is particularly critical, as it allows property management companies to avoid hourly tracking of the work done by their team on a given property to ensure compliance with state tax law. The amendment says the substantiation for this claim must be ‘based on a reasonable approximation of the real property management services provided and supported by the person’s business records kept in the ordinary course of business.

The law also provides a two-year grace period, ending January 1, 2021, during which time the Department of Revenue shall assess no taxes or penalties on property management companies that fail to collect sales tax on RMI services provided under a service contract.

Senate Bill 420

The Governor has also signed Senate Bill 420 “NC Servicemembers Civil Relief Act” into law at the end of last week. The goal of this legislation is two-fold. First, it puts into state law a set of protections for active duty servicemembers which has similarities to the protections provided to them in federal law. Second, it provides needed clarifications to the protections for members of the North Carolina National Guard who have been called up for active duty. NC REALTORS® and the NC REALTORS® Property Management Division worked extensively on this legislation to ensure that while servicemembers are given appropriate protections, the opportunities for abuse of the system are severely limited.

The NC REALTORS® Legal Team is currently working on a complete analysis of this bill and its impact on property managers. Stay tuned for more information soon.

What else is going on?

As legislative leaders and the Governor remain in a stalemate over the budget, this week only saw votes taken in the House of Representatives. Each side seems unwilling to budge on their respective positions on Medicaid expansion and it is unclear when a deal may be reached.

This break in the action has allowed for multiple meetings with stakeholders and legislators on important topics like short-term rentals and association health plans. We continue to work on these and many other issues as we await word on what the next few weeks will hold for the NC General Assembly and their schedule.



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