POA Budget Planning: Five Tips for Understanding RMI Sales Tax

For many, the new year ushers in a fresh start, full of resolutions to get fit, eat right and lose weight.

But for those on community or condominium association boards, the new year also signals the return of an often tedious and stressful task – budget planning.

There are plenty of tips to alleviate that stress, including setting aside a dedicated planning session and creating a clear list of objectives. But before you break down the revenue and expenses, it’s equally important to keep in mind any state legislation that could end up affecting your budget’s bottom line.

Of particular note is North Carolina’s Current Operations and Capital Improvements Appropriations Act or, more simply, the “budget bill.”

Below are a few key points to consider while crunching those numbers:

1. The budget bill expands the number of taxable repair, maintenance and installation (RMI) services. RMI services are those performed on tangible personal property. The new law was enacted in an effort to clear up confusion about RMI taxability in earlier legislation. But in doing so, the budget bill created a default mode – all RMI services are taxable unless specific exceptions are met.

That could include:

  • Installation of plumbing fixtures and flooring
  • Pool repair and maintenance services
  • Pond maintenance
  • Installing new locks/re-keying doors

2. Taxability depends on the nature of the service. The only RMI services exempt from these recent changes are those done for capital improvement. According to state statute, “capital improvement” is any construction, reconstruction or remodeling project that, once complete, becomes applied or affixed to a property in such a way that removing it would cause damage to the structure or building material itself.

Sound confusing? In more basic terms, a single RMI service – such as repairing a leaky pipe – is taxable, but the replacement of an entire plumbing system is exempt.

3. Some untaxed RMIs remain. For property owner associations (POAs), the good news is that a number of typical expenses remain exempt from the RMI tax, including:

  • Landscaping
  • Snow removal
  • Pest control services
  • Services on roads, driveways, parking lots and sidewalks.

4. Splitting contracts may help cut costs. POAs can potentially save money on sales tax expenses simply by separating certain service contracts that normally fall under one agreement. For example, pool maintenance and repair – a taxable service – can be separated from cleaning the pool restroom, which is a non-taxable service.

5. You’re not alone. The wave of sales tax legislation over the last several years has left many business owners and clients scratching their heads. Tax advisors have kept abreast of and are well-versed in the changes, so it’s always best to contact your accountant with specific questions or advice on further cutting out some of the sales tax cost.